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■  ■ 


THE 

Farmers'  Loan  and  Trust  Company 

16,  18,  20  &  22  WILLIAM  STREET 

BRANCH  OFFICE,  475  FIFTH  AVE. 

NEW  YORK 


LONDON 
15    COCKSPUR   ST.,    S.  W. 
26    OLD    BROAD    ST.,    E.   C. 


PARIS 
41    BOULEVARD  HAUSSMANN 


BERLIN 

56    UNTER    DEN    LINDEN, 

N.   W.   7 


THE    Company  is  a  legal  depositary  for  moneys  paid  into 
Court,  and  is  authorized  to  act  as  Executor,  Administrator, 
Trustee,    Guardian,    Receiver,    and    in   all   other   fiduciary 
capacities. 
Acts  as  Trustee  under  Mortgages  made  by  Railroad  and  other  Cor- 
porations, and  as  a  Transfer  Agent  and  Registrar  of  Stocks  and 
Bonds. 
Receives  deposits  upon  Certificates  of  Deposit,  or  subject  to  check 

and  allows  interest  on  daily  balances. 
Manages  Real  Estate  and  lends  money  on  bond  and  mortgage. 
Will  act  as  Agent  in  the  transaction  of  any  approved  financial  business. 
Depositary  for  Legal  Reserves  of  State  Banks  and  also  for  moneys 

of  the  City  of  New  York. 
Fiscal  Agent  for  States,  Counties  and  Cities. 

Foreign  Exchange,  Gable  Transfers 
Letters  of  Credit  payable  throughout  the  world 


HENRY  A.  C.  TAYLOR 
CHARLES  A.  PEABODY 
WM.  WALDORF  ASTOR 
OGDEN  MILLS 
FRANKLIN  D.  LOCKE 
PERCY  CHUBB 
GEORGE  F.  BAKER 
FRANCIS  M.  BACON,  Jr. 
SAMUEL  SLOAN 


BOARD  OF  DIRECTORS 
JOHN  J.  RIKER 
PERCY  A    ROCKEFELLER 
THOMAS  F.  VIETOR 
AUGUSTUS  V.  HEELY 
HENRY  R.  TAYLOR 
THOMAS  THACHER 
JOHN  W.  STERLING 
EDGAR  PALMER 
ANTON  A.  RAVEN 


MOSES  TAYLOR  PYNE 
J.  WILLIAM  CLARK 
CLEVELAND   H.  DODGE 
HENRY  HENTZ 
EDWARD  R.  BACON 
FRANK  A.  VANDERLIP 
JAMES  A.  STILLMAN 
ARCHIBALD  D.  RUSSELL 
EDWIN  S.  MARSTON 


OFFICERS 
EDWIN  S.  MARSTON,  President 
AUGUSTUS  V.  HEELY,  Vice-Pres.andSec'y. 
CORNELIUS  R.  AGNEW,  Vice-President 
HORACE  F.  HOWLAND,  Asst.  Secretary 
WILLIAM  A.    DUNCAN,  Asst.  Secretary 


SAMUEL  SLOAN,  Vice-President 
WILLIAM  B.  CARDOZO,  Vice-President 
J.  HERBERT  CASE,  Vice-President 
ROB^RJ  E,  BOYD,  Assr.  Secretary 
EDW'IHl''3i:BIil>,  Asst.  Secretary 


^  m\\\\\\\\\\\\\\\\\\\\\\\\^^^^^^ 

m  I  Having  credit  enough  with  his  master  to  provide  for  his  own  interest,  he  troubled  not  ^ 

»  I        himself  for  that  of  other  men.— Clarendon.  | 

I 


S  CREDIT  is  the  most  effective  force  in 
our  banking  system  there  is  always  a 
demand    for    credit    information;    and 


The  Mechanics  and  Metals 
National  Bank 

of  the  City  of  New  York 

has  the  faciHties  and  equipment  for  supplying 
banks  and  other  customers  with  such  informa- 
tion. 

Capital,  Surplus  and  Profits,  $  15,000,000 
Deposits  (June  23,  1915),      .     124,000,000 


OFFICERS 

GATES  W.  McGARRAH,  President 

NICHOLAS  F.  PALMER 

.     Vice-President 

SAMUEL  S.  CAMPBELL       . 

Vice-President 

JOHN  McHUGH       .       . 

.     Vice-President 

JOSEPH  S.  HOUSE 

Cashier 

FRANK  O.  ROE       .       . 

.     Vice-President 

JOHN  ROBINSON    .        .       . 

Asst.  Cashier 

WALTER  F.  ALBERTSEN 

.     Vice-President 

ERNEST  W.  DAVENPORT  . 

Asst.  Cashier 

HARRY  H.  POND    .       . 

.     Vice-President 

NORTH  McLEAN     .     Manage 

Foreign  Dept. 

»\\\\V\\\\\\\\\\\\\\\\\^^^^^^ 


-11 


Strangers  used  to  credit  and  trust  the  poor  inhabitants,  which  had  not  ready  money. 
Henry  VIll.  | 


UNITED  STATES 
nOKTGAGEgTRUI 
COMPANY 

NEW  YOR^K 

CAPITAL  AND  SURPLUS  $6,000,000 

MEMBER  OF  THE  NEW  YORK  CLEARING  HOUSE  ASSOCIATION 


DIRECTORS 

Nicholas  Biddle 

Robert  Olyphant 

Charles  S.  Brown 

John  W.  Flatten 

Burns  D.  Caldwell 

Mortimer  L.  SchilT 

Lewis  L.  Clarke 

Elbridge  G.  Snow 

Thomas  DeWitt  Cuyler 

Henry  Tatnall 

Charles  D.  Dickey 

Eben  B.  Thomas 

Allen  B.  Forbes 

James  Timpson 

Henry  R.  Ickelheimer 

Guy  E.  Tripp 

William  A.  Jamison 

Arthur  Turnbull 

Louis  C.  Krauthoff 

Cornelius  Vanderbilt 

Julius  Kruttschnitt 

George  G.  Ward 

Adolph  Lewisohn 

William  H.  Williams 

OFFICERS 

John  W.  Flatten,    -     -    -     President 

Calvert  Brewer,      -      Vice-President 

Carl  G.  Rasmus,     -      Vice-President 

Frank  J.  Parsons,    -      Vice-President 

Joseph  Adams,  -    -     -    -    Treasurer 

Alexander  Phillipi,      -     -     Secretary 

Henry  L.  Servoss,  -     Asst.  Treasurer 

T.  W.  B.  Middleton,     Asst.  Secretary 

Harry  W.  Hadley,  -     Asst.  Treasurer 

Chauncey  H.  Murphey,  Asst.  Treas. 

William  T.  Law,      -    Asst.  Secretary 

Ralph  L.  Cerero,    -    Asst.  Secretary 

m\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ 

I  Manufactures  were  rude,  credit  almost  unknown;  society  therefore  recovered  from  the     ^ 

I      shock  of  war  almost  as  soon  as  the  actual  conflict  was  over. — Macaulay.  ^ 

m\\mm\\\\\\\\\\\\\\\^^^^^^ 


NATlOlMAL  BANK 
orvG.?TOcccL;pCyXJJi 


The    Seaboard  National    Bank 

of  the  City  of  New  York 

/^^REDIT  information  and  banking  facilities 
^^  are  as  essential  under  the  regime  of 
the  Federal  Reserve  Association  as  heretofore. 
Our  facilities  are  at  the  command  of  our 
patrons  and  we  respectfully  solicit  an  oppor- 
tunity to  demonstrate  the  quality  of  our  service. 

Capital       ....       1 1, 000,000 
Surplus  and  Profits  (Earned)      2,800,000 

S.  G.  BAYNE,  President 
S.  G.  NELSON,  Vice-President  W.  K.  CLEVERLEY,  Cashier 

C.  C.  THOMPSON,  Vice-President  L.  N.  DeVAUSNEY,  Asst.  Cashier 
B.  L.  GILL,  Vice-President  J.  C.  EMORY,  Asst.  Cashier 

O.  M.  JEFFERDS,  Asst.  Cashier 


I  ..       .  .  Il 

1 1  Credit  is  nothing  but  the  expectation  of  money  within  some  limited  time. — Locke.  |  I 


IV 


FOURTH   STREET 
NATIONAL  BANK 

PHILADELPHIA 


Offers  Unexcelled  Facilities  to  Banks,  Bankers  and  Trust  Companies 

Foreign  Exchange  in  all  its  Branches 

Steamship  Tickets  to  all  parts  of  the  World 


Capital,  Surplus  and  Profits 


$9,800,000 


OFFICERS 

E.  F.  SHANBACKER,  President 
JAMES  HAY,  Vice-President  W.  A.  BULKLEY,  Asst.  Cashier 

FRANK  G.  ROGERS,  Vice-President  W.  K.  HARDT,  Asst.  Cashier 

R.  J.  CLARK,  Cashier  C.  F.  SHAW,  Jr.,  Asst.  Cashier 

DIRECTORS 

SIDNEY  F.TYLER,  Chairman 
JAMES  HAY,  President  Merchants  Warehouse  Co. 

FRANK  T.  PATTERSON.  Philadelphia 

CHARLES  I.  CRAGIN.  Forrest  Building 

WILLIAM  A.  DICK,  North  American  Building 

EFFINGHAM  B.  MORRIS, 


President  Girard  Trust  Co. 
WM.  R.  NICHOLSON, 

President  Land  Title  and  Trust  Co. 


RUDULPH  ELLIS, 


President  Fidelity  Trust  Co. 


FRANCIS  I.  GOWEN, 

General  Counsel  Pennsylvania  R.  R.  Co. 

ISAAC  H.  CLOTHIER,        Eighth  and  Market  Streets 


C.  S.  W.  PACKARD, 

President  Pennsylvania   Company  for   Insurances 
on  Lives  and  Granting  Annuities 
E.  F.  SHANBACKER,  President 

J.  M.  WILLCOX, 

Vice-President   Philadelphia   Saving  Fund  Society 
T.  C.  du  PONT. 

President  E.  I.  du  Pont  de  Nemours  Powder  Co. 
THOMAS  S.  GATES. 

President  Philadelphia  Trust,  Safe  Deposit  &  In- 
surance Co. 
WILLIAM  de  KRAFFT,     Secretary   and  Treasurer  The 
Baldwin  Locomotive  Works 
FRANK  G.  ROGERS,  Vice-President 

GEORGE  K.  JOHNSON, 

President  Penn  Mutual  Life  Insurance  Company 


W\\\\\V\\\\\\\\\\\\\\\\\^^^^^^ 

I  He  traded  largely;  his  credit  on  the  Exchange  of  London  stood  high,  and  he  had  accu-     ^ 

I     mulated  an  ample  fortune. —  Macaulay.  ^ 

W\\\\\\\\\\\\\\\\\\\\\mm^^^^^^ 


The  Girard  National  Bank 

Philadelphia 

HE  Federal  Reserve  system 
only  affects  that  portion  of 
balances  formerly  carried  in  the 
reserve  centers  that  meets  the  reserve 
requirements  of  the  Reserve  Associa- 
tion. Member  banks  as  well  as  non- 
member  banks  find  their  interests  best 
conserved  by  maintaining  active  accounts 
with  the  independent  banks  in  the 
reserve  cities. 

THE  GIRARD  NATIONAL  BANK 
OF  PHILADELPHIA  has  served  its 
patrons  efficiently  for  over  eighty  years  and  will  continue  to  give 
prompt  official  attention  to  all  business  entrusted  to  it. 


Stephen  Giiard 
Born  1750  Died  1 83  I 


Capital  and  Surplus 
Resources 


OFFICERS 


$  6,500,000 
50,000,000 


FRANCIS  B.  REEVES,  Chairman  of  the  Board 
JOSEPH  WAYNE,  Jr.,  President  CHARLES   M.   ASHTON,  Cashier 

EVAN  RANDOLPH,  Vice-President  A.  W.    PICKFORD,   Asst.   Cashier 

THEO.  E.   WIEDERSHEIM,  Vice-President  ALFRED  BARRATT,  Asst.  Cashier 


I  If  it  were  not  for  credit  many  people  who  possess  capital  but  have  no  means  of  utilizing     ^ 

I      it  themselves  would  find  it  useless  and  profitless.— John  Stuart  Mill.  I 

V! 


Continental   and  Commercial 
National  Bank 

of  Chicago 


Capital,  Surplus  and  Undivided  Profits 


OFFICERS 

George  M.  Reynolds,     -    -     President 

Arthur  Reynolds, 

V 

-Pres't 

Nathaniel  R.  Losch,              Cashier 

Ralph  Van  Vechten, 
Alex.  Robertson. 

V 
V 

-Pres't 
-Pres't 

John  R.  Washburn,     Ass't  Ca.shier 

Herman  Waldeck, 

V 

-Pres't 

John  C.  Craft, 

V 

-Pres't 

James  R.  Chapman, 

V 

-Pres't 

Wm.  T.  Bruckner, 

V. 

-Pres't 

$33,000,000 


Harvey  C.  Vernon,  Ass't  Cashier 

Geo.  B.  Smith,  Ass't  Cashier 

Wilber  Hattery,  Ass't  Cashier 

H.  Erskine  Smith,  Ass't  Cashier 

Wilson  W.  Lampert,  Ass't  Cashier 

Dan  Norman,  Ass't  Cashier 

Geo.  A.  Jackson,  Ass't  Cashier 


Continental  and  Commercial 
Trust  and  Savings  Bank 

Capital,  Surplus  and  Undivided  Profits     -     -     -     $5,000,000 
Trust,  Savings  and  Bond  Departments 


OFFICERS 

George  M.  Reynolds,     -    -    President 


John  Jay  Abbott,  Vice-President 
Arthur  Reynolds,  Vice-President 
Charles  C.  Willson,  Cashier 


Frank  H.  Jones, 
Wm.  P.  Kopf, 


Secretary 
Ass't  Secretary 


Henry  C.  Olcott,  Mgr.  Bond  Dept. 
Robert  J.  Hircock,  Ass't  Cashier 
Albert  S.  Martin,  Ass't  Cashier 


The   Hibernian  Banking 
Association 


Capital,  Surplus  and  Undivided  Profits 


$3,000,000 


OFFICERS 

George  M.  Reynolds    -    -    President 


David  R.  Lewis, 
Henry  B.  Clarke, 
Louis  B.  Clarke, 


Vice-President 
Vice-President 
Vice-President 


Frederic  S.  Hebard, 
Everett  R.  McFadden, 


Cashier 
Secretary 


John  P.  V.  Murphy,  Mgr.  Sav.  Dept. 
George  Allan,  Ass't  Cashier 

Thos.  E.  McGrath,     Ass't  Cashier 


Combined  Resources  of  these  Affiliated  Banks 
Over    $250,000,000 


«  I  How^ever  gradual  may  be  the  growth  of  confidence,  that  of  credit  requires  still  more  time     |  m 


m  1  luwcvci    {^lauuai  may    ut 

I      to  arrive  at  maturity. —  Disraeli 


IH 


WHILE  the  Federal  Reserve  Act  has 
divided  the  country  into  regional 
districts,  the  course  of  trade  remains 
the  same.  Banking  follows  its  natural  channels, 
and  your  New  York  business  needs  the  same 
careful  attention  as  heretofore.  One  hundred  and 
twelve  years'  experience  in  serving  banks  as 
their  New  York  correspondent  tends  to  make  this 
Bank's  facilities  and  service  of  great  value  to  out- 
of-town  banks  under  the  new  regime. 

The  Merchants  National  Bank 

of  the 

City  of  New  York 

DIRECTORS 


JOHN  A.  STEWART.  Chairman  Board  of  Trustees 

United  States  Trust  Co. 
ROBERT  M.  CALLAWAY,  President 
CHARLES  D.  DICKEY 

Brown  Brothers  &  Co.,  Bankers 
EDWARD  HOLBROOK 

President  Gorham  Manufacturing  Co. 
JOSEPH  W.  HARRIMAN,  Vice-President 

Harriman  &  Co.,  Bankers 
WILLIAM  A.  TAYLOR,  Taylor  Clapp  &  Co. 

Dry  Goods  Commission 


GEORGE  ZABRISKIE 

Zabriskie  Murray  Sage  &  Kerr,  Lawyers 
CHARLES  A.  BOODY 

President  The  Peoples  Trust  Co.  of  Brooklyn 

JAMES  C.  COLGATE 

James  B.  Colgate  &  Co.,  Bankers 
GUSTAV  SCHWAB 

Oelrichs  &  Co.,  Agt's  North  German  Lloyd  S.S.Co. 
JOSEPH  BYRNE,  Vice-President  and  Cashier 
T.  FRANK  MANVILLE 

President  H.  W.  Johns-Manville  Co. 


FOUNDED 
I803 


Resources  over  $30,000,000  I 

f^\\\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^  »\ 

»        .  _      _  ..II 

I        Silver  and  gold  are  not  the  only  coin  ;  virtue  passes  current  all  over  the  world. —  Euripides.  ^  ^  ^ 

m\\\\\\\\\\\\\\\\\\\\\\\m\\^^^  P»  i^ 

VIII 


THE  BANK  OF  COMMERCE 


NATIONAL  ASSOCIATION 
CLEVELAND 

THE  CHAN^GES  IX  THE  METHODS  OF  CARRY- 
ING RESERVES  UNDER  THE  FEDERAL  SYS- 
TEM CREATES  A  GREATER  DEMAND  FOR  THE 
SERVICE  AND  CREDIT  FACILITIES  OF  PRI- 
VATELY MANAGED  BANKING  INSTITUTIONS 
IN    RESERVE    CENTERS    THAN  HERETOFORE. 

IN  CLEVELAND,  the  location  of  fed- 
eral   RESERVE    BANK,   NUMBER    4,   THE 

BANK  OF  COMMERCE  NATIONAL 
ASSOCIATION    CONTINUES,   as    has   al- 

A\^AYS  BEEN  ITS  CUSTOM,  TO  RENDER  SUCH 
EFFICIENT  SERVICE  TO  ALL  CORRESPOND- 
ENTS AS  MAKES  IT  MUTUALLY  PROFITABLE. 
ITS  DIRECTORATE  IS  COMPOSED  OF  SOME 
OF  CLE ^  ELAND'S  3IOST  REPRESENTATIVE 
BANKERS  AND  BUSINESS  3IEN;  AN  ASSUR- 
ANCE OF  A  FAITHFUL  PERFORMANCE  OF 
BUSINESS  ENTRUSTED  TO  IT. 


I 


m\\\v\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^ 


If  you  were  ignorant  of  this,  that  credit  is  the  greatest  capital  of  all  towards  the  acquisition       ^ 


I    of  wealth,  you  would  be  utterly  ignorant — Demosthenes 

sW\\\\\\\\\\\\\\\\\\\\\\\\^^^^^^ 


i 


« 


^ 


■ 


a 


^ 


^^^ 


Statement  of  the  Condition  of  the 

Wisconsin  National  Bank 

of  Milwaukee 

UNITED  STATES    DEPOSITORY 

At  the  Close  of  Business  May  1  st,  1 9 1  5 

Compared  with  the  Corresponding  Period  of  1914 


mm 


RESOURCES 

May  1,   1914 

Loans  and  Discounts $13,934,687.24 

Bonds—  Govt.,  Municipal  &  R.  R.  3,078,997.90 

Real  Estate 541,000.00 

Cash  and  Due  from  Banks    .    .    .  8,334,465.70 


May  1.   1915 

$15,998,316.54 

3,280,306.35 

641,000.00 

8,950,394.77 

Total $25,889,150.84      $28,870,017.66 


LIABILITIES 

Capital  Stock $2,000,000.00  $2,000,000.00 

Surplus  and  Undivided  Profits  .    .  1,435,590.36  1,476,505.03 

Res.  for  Tax.  &  Unearned  Interest  53,011.60  52,778.63 

Circulation 1,640,895.00  1,665,995.00 

Deposits 20,759,653.88  23,674,739.00 

Total $25,889,150.84      $28,870,017.66 

OFFICERS 

L.  J.  PETIT,  President 
HERMAN  F.  WOLF,  Vice-PreHdent  FRANZ  SIEMENS,  Asst.  Cashier 

L.  G.  BOURNIQUE,  Vice-President  WILLIAM  K.  ADAMS,  Asst.  Cashier 

WALTER  KASTEN,  Vice-President  F.  K.  McPHERSON,  Asst.  Cashier 

J.  M.  HAYS,  Cashier  A.  V.  D.  CLARKSON,  Asst.  Cashier 


ISAAC  D.  ADLER 
DR.  C.  E.  ALBRIGHT 
L.  G.  BOURNIQUE 
PATRICK  CUDAHY 
HERMAN  W.  FALK 


DIRECTORS 

OLIVER  C.  FULLER 
R.  W.  HOUGHTON 
WALTER  KASTEN 
GUSTAVE  PABST 
L.  J.  PETIT 


CHAS.  SCHRIBER 
CLEMENT  C.  SMITH 
HENRY  M.  THOMPSON 
GEO.  D.  VAN  DYKE 
HERMAN  F.  WOLF 


I  .11 

I  Put  not  your  trust  in  money  but  put  your  money  in  trust. —  Holmes.  1  m  ^ 

fc\\\\\\\\\\\\\\\m\m\\\\\^^^^^^^  &" 


Cleveland 


HE  great  industrial  progress  of  Cleveland 
and  her  advancement  as  a  banking  center 
w^ere  the  two  principal  reasons  for  the 
location  of  Federal  Reserve  Bank  num- 
ber 4.  All  of  which  make  an  individual  banking  connection 
here  more  essential  than  ever  before. 

The  Union  National  Bank 

is  equipped  to  meet  every  requirement  of  banks  desiring  a 
Cleveland  correspondent. 

G.  A.  COL'LTON.  President 
W.  E.  WARD.  Vice-President  W.  C.  SAUNDERS.  Cashier 

E.  E.  CRESWELL.  Assistant  Cashier        F.  W.  COOK,  Assistant  Cashier 
A.  E.  CHRISTIAN.  Assistant  Cashier       C.  F.  MEAD.  Assistant  Cashier 


|}S\\^\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ 


.^^^^^.^^^....^^^^^^ 


M  |i  Let  us  all  be  happy  and  live  within  our  means,  even  if  we  have  to  borrow  the  money  to     ^  m; 

11      do  it  with.— Artemus  Ward.  |  » 


Qylck  to  serve  under  any  banking  system. 
«  —  Com  Exchange  i  8  C 

m\\\\\\\\\\\\\\\\\\\\\\^^^^^^  ^  ■ 


Organized     185^ 


The 

Corn    Exchange 
Bank 


NEW  YORK  CITY 


Capital,  Surplus  and  Profits  $10,000,000 


OFFICERS 

WILLIAM  A.   NASH,  Chairman  of  the  Board 
WALTER  E.  FREW,  President 

WILLIAM  H.  NICHOLS,  Vice-President     JOHN  T.  PERKINS,  Vice-President 

FRANCIS  H.  PAGE,  Vice-President 
FREDERICK  T.  MARTIN,  Cashier  EDWARD  S.  M.\LMAR,  Asst.  Cashier 

WM.  E.  WILLIAMS,  Asst.  Cashier  DUNHAM  B.  SHERER,  Asst.  Cashier 

JOHN  S.  WHEELAN,  Asst.  Cashier  RICHARD  D.  BROWN,  Asst.  Cashier 


In  accordance  with  the  provision  of  the  New  York  Banking  Law,  this 
bank  is  prepared  to  make  acceptances,  based  on  actual  commer- 
cial transactions,  thus  giving  the  paper  so  accepted  the  quality 
that    passes    as    "prime   paper"    in    the    markets    of   the  world. 


Accounts  of   State   Banks  and  Trust 
Companies  Invited 


a 


]N\\\\\\\\\\\\\\\\\\\\\\\^^^^^^ 

I  We  are  content  to  take  this  on  your  credit. —  Hooker. 


XIII 


ESTABLISHED  1891 

Capital  and  Surplus,  $3,000,000 

ITH  the  establishment  of  the  Federal 
Reserve  System,  the  member  banks 
have  at  their. disposal  greater  re- 
sources and  additional  facilities  for 
taking  care  of  their  depositors. 

THE    NATIONAL    BANK 

OF  THE 

REPUBLIC 

OF  CHICAGO 

is  therefore  better  than  ever  prepared  to  offer 
to  banks  and  bankers  the  benefit  of  service 
based  upon  long  experience  and  familiarity 
with  the  requirements  of  its  correspondents, 
and  such  special  attention  as  the  business  of 
each  customer  may  demand. 


JOHN  A.  LYNCH  President  WILLIAM  T.  FENTON,  Vice-President 

ROBERT  M.  McKINNEY       Cashier  O.  H.  SWAN  Assistant  Cashier 

JAMES  M.  HURST,  Assistant  Cashier  WM.  B.  LAVINIA       Assistant  Cashier 

THOS.  D.  ALLIN      Assistant  Cashier  LOUIS  J.  MEAHL      Assistant  Cashier 

WM.  G.  LEISENRING  Mgr.  Bond  Department 

A.  O.  WILCOX,  Mgr.  Foreign  Exchange  Department 

W.  L.  JOHNSON      Mgr.  Collection  Department 

CHAS.  S.  MACFERRAN  Auditor 


I        . .  .  _      _^^  ^ T 

fv\\\\\>  pa  ^  \  Credit  is  the  roadway  along  which  nations  advance  from  barbarism  to  civilization. —  Pratt.        ^ 

m\\\\\\\\\\\\\\\\v&\\\\\\\\\\\^^^^ 


^i 


Commercial  Paper 

a  rM  a 

Bills  of  ExcKande 

<Qf  the  y^orld^ 


A  review  of  the  general  methods  observed  in  discount- 
ing  commercial   paper    and   bills   of   exchange 
throughout  the  vv^orld,  w^ith  a  special  refer- 
ence to  hank  acceptances^  also  a  brief 
history  of  the  origin  and  develop- 
ment of  commercial  paper. 


Banking    Law   Journal    Year   Book 
Tenth    Year 


Published  by  the  Banking  Law  Journal 

27  Thames  Street,  New  York 


H^ 


Copyright,  igis,   by  the  Banking  Law  Journal 


.6; 


The 
Chase  National   Bank 

OF  THE  CITY  OF  NEW  YORK 
57  BROADWAY 

UNITED  STATES  DEPOSITORY 


Capital $    5,000,000 

Surplus  and  Profits  (Earned)       9,832,000 
Deposits  (June  23,  1915)     .     171,930,000 

OFFICERS 
A.  BARTON  HEPBURN,  Chairman 


ALBERT  H.  WIGGIN,  President 


SAMUEL  H.  MILLER,  Vice-President 
EDWARD  R.TINKER  Jr.,  Vice-President 
ALFRED  C.  ANDREWS,  Cashier 

CHARLES  C.  SLADE,  Asst.  Cashier 


WILLL\M  E.  PURDY. 
CHARLES  D.  SMITH, 
WILLIAM  P.  HOLLY, 
GEORGE  H.  SAYLOR, 


Asst.  Cashier 
Asst.  Cashier 
Asst.  Cashier 
Asst.  Cashier 


EDWIN  A.  LEE, 


Asst.  Cashier      M.  HADDEN  HOWELL,      Asst.  Cashier 


DIRECTORS 


HENRY  W.  CANNON 
JAMES  J.  HILL 
A.  BARTON  HEPBURN 
ALBERT  H.  WIGGIN 


GEORGE  F.  BAKER,  Jr. 
FRANCIS  L.  HINE 
JOHN  J.  MITCHELL 
GUY  E.  TRIPP 


WE  RECEIVE  ACCOUNTS  OF 

Banks,  Bankers,  Corporations,  Firms  or  Individuals  on  favor- 
able terms,  and  shall  be  pleased  to  meet  or  correspond  with  those 
who  contemplate  making  changes  or  opening  new  accounts. 

FOREIGN  EXCHANGE  DEPARTMENT 


I  If  it  M'brte'.fidt'for'eVecftt'ni'any  people  who  possess  capital  but  have  no  means  of  utiKzing    |  ^ 

I       it  themselves  would  find  it  useless  and  profitless. — John  Stuart  Mill.  |  A 

sW\\\\\\\\\\\\\\\\\\\\\^^^^^^ 


M 


Milling  District,  Minneapolis 

INNEAPOLIS  is  a  city  of  many 
mills,  elevators  and  factories,  and 
is  a  notable  distributing  center. 

i                 Its  many  commercial  enterprises  give  rise  to  an  | 

I           increasingly  large  number  of  banking  transactions.  | 

I                 With  bankers,  the  careful  placing  of  their  grow-  | 

I            ing  Minneapolis  business  is  naturally  an  important  | 

matter.  | 

I 

The  Northwestern   National  Bank  prides  itself  | 

on  the  excellence  of  the  attention  given  to  its  bank  | 

correspondents.    Any  inquiry  concerning  accommo-  | 

dations  and  facilities  will  be  promptly  attended  to.  I 

I 

5j0rtl|ui^st?rn  JJattnnal  lank  | 

MINNEAPOLIS,  MINNESOTA  I 

Resources,  $40,000,000  j 

W\\\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^  ^»»  I 

Strangers  used  to  credit  and  trust  the  poor  inhabitants,  which  had  not  ready  money. —  ^  | 


XVII 


Mississippi  Valley  Trust   Co. 

St.  Louis 

Twenty-Fifth  Anniversary,  October  3,  1915 

THIS  Trust  Company's  development  has  been  that  of 
a  single  institution  without  absorption  of  or  consolida- 
tion with  any  other. 
It  celebrates,  not  age  but  growth,  not  time  but  the  use  of 
time,  not  years  but  long  and  earnest  service. 


HENRY  SEMPLE  AMES 
WILLIAM  BAGNELL 
JOHN  I.  BEGGS 
EUGENE  H.  BENOIST 
JAMES  E.  BROCK 
JOHN  D.  DAVIS 
DAVID  R.  FRANCIS 
HORD  HARDIN 


DIRECTORS 

S.  E.  HOFFMAN 

BRECKINRIDGE  JONES 

WILLIAM  G.  LACKEY 

W.  J.  McBRIDE 

GEORGE  A.  MAHAN 

ROBT.  J.  O'REILLY.  M.  D. 

WM.  D.  ORTHWEIN 

HENRY  W.  PETERS 


H.  CLAY  PIERCE 

HENRY  S.   PRIEST 

CHARLES  E.  SCHAFF 

J.  SHEPPARD  SMITH 

R.  H.  STOCKTON 

FREDERICK  VIERLING 

JULIUS  S.  WALSH 

ROLLA  WELLS 

LOUIS  WERNER 


Capital,  Surplus  and  Profits  over 
$8,000,000.00 


m\\\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ 

I  He  traded  largely;  his  credit  on  the  Exchange  of  London  stood  high,  and  he  had  accu-      | 

^     mulated  an  ample  fortune. —  Macaulay.  | 


®f)e  Peoples;  ^tate  lanfe 

MICHIGAN 


DETROIT 


Capital,  Surplus  and  Profits,    $  5,150,000.00 

Deposits    ::     ::     ::     ::     ::     ::  41,000,000.00 

OFFICERS  DIRECTORS 

Geo.   E.  Lawson       President  Russell  A.  Alger                  Geo.  E.  Lawson 

R.  S.  Mason Vice-President  George  H.   Barbour               H.  B.  Ledyard 

F.  A.  Schulte Vice-President  ,,,    t-    d                                    t    t-    »,!    \a 

W.  T.  Barbour  J.  T.  McMillan 

J.  T.   Keena Vice-President 

.              P    ,,r                                                       ^    1  •  H.  M.  Campbell                  R.    S.    Mason 

Austin  E.  Wing Cashier 

H.  P.   BoRGMAN       .    .  Cashier  Savings  Department  B.  S.  Colburn                      Fred.  T.  Moran 

R.  W.  Smylie    .    .    .  Manager  Credits  and  Audits  C.  A.  Ducharme                 M.  J.    Murphy 

J.  R.  BoDDE Assistant  Cashier  Jeremiah  Dwyer                  W.  Howie  Muir 

Charlks  H.  Ayers Assistant  Cashier  i-           t    u                          u            d      .. 

Frank  J.   Hecker  Henry  Russel 

Enoch  Smith Assistant  Cashier 

.     .           ^    ,  .  Fred    W.  Hodges                 Hugo  Scherer 

R.  T.   Cudmore Assistant  Cashier 

Geo.  T.  Courtney Auditor  J-  C  Hutchins                     F:  A.  Schulte 

J.  T.  Keena Attorney  Jas.  T.   Keena                     Angus  Smith 


Accounts  of  Banks,  Bankers,  Firms,  Corporations 
and  Individuals  received.    .'.    Excellent  Collection 

Facilities 


«p*\\\\\\\\\\\\\\\\\\\\^^^^^^ 

I  Having  credit  enough  with  his  master  to  provide  for  his  own  interest,  he  troubled  not     | 

I     himself  for  that  of  other  men. —  Clarendon.  M 

I  I 

!m\\\\\\\\\\\\\\\\\\\\\\\^^^^^^^ 


M 


XIX 


THE 


Chemical  National  Bank 

New  York 


Established  1824 


Capital  and  Surplus 


$10,000,000 


Transacts  a  General  Banking  Business 


JOSEPH   B.    MARTINDALE,   President 

H.    K.   TWITCHELL,   Vice-President  JAMES  L.    PARSON,    Asst.  Cashier 

FRANCIS   HALPIN,   Cashier  EDWARD    H.   SMITH,   Asst.   Cashier 


Directors: 

FREDERIC    W.    STEVENS 


W.  EMLEN  ROOSEVELT 
AUGUSTUS   D.  JUILLIARD 
ROBERT  WALTON  GOELET 
WILLIAM  H.  PORTER 


CHARLES  CHENEY 
ARTHUR  ISELIN 
JOSEPH    B.  MARTINDALE 
HERBERT  K.   TWITCHELL 


m\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^  ^ 

I  However  gradual  may  be  the  growth  of  confidence,  that  of  credit  requires  still  more  time     |  ^ 

I      to  arrive  at  maturity. —  Disraeli.  |  ^ 


CHARTERED  1799 


BANK  OF  THE 
MANHATTAN  COMPANY 

40  WALL  STREET,  NEW  YORK 


Capital   . 
Surplus   . 


$2,050,000.00 
4,100,000.00 


STEPHEN   BAKER 

President 


HENRY  K.  McHABG 

Vice-President 

JAMES  McNEIIi 

Ass't  Cashier 


.JAMES  TALCOTT 

Merchant 

HENRY    K,    McHARG 

\'ice-President 

STEPHEN  BAKER 

President 

FREDK.  G.  BOURNE 

Singer  Manufacturing  Co. 


D.  H.  PIERSON 

Cashier 

B.  D.  FORSTER 

Ass't  Cashier 


DIRECTORS 

R.   \V.  PATERSON 

Paterson,  Boardman  &  Knapp 
Importers 

WILLIAM    S.   TOI> 

Banker 

JAMES  SPEYER 

Speyer  &  Co.,  Bankers 

TVILLIAM  SLOANE 

President,  W.  &  J.  Sloane,  Carpets 


SAMUEL  SLOAN 

Vice-President,  The  Farmers'  Loan 
&  Trust  Co. 

B.  IT.   BORDEN 

M.  C.  D.  Borden  &  Sons,  Commission 
Merchants 

"WALTER  .JENNINGS 

President  National  Fuel  Gas  Co. 

CHAS.  H.  TENNEY 

Merchant 


Accounts  of  Corporations,  Firms  and  Individuals 

received  on  favorable  terms. 

Foreign  Exchange. 

Commercial  Credits. 


m\\\\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ 

I  Manufactures  were  rude,  credit  almost  unknown;  society  therefore  recovered  from  the      ^ 

I     shock  of  war  almost  as  soon  as  the  actual  conflict  was  over. — Macaulay.  | 

m\\\\\\\\\\\\\\\\\\\\^^^^^ 


XXI 


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First  National  Bank  Building 

MILWAUKEE,  WIS. 

HOME  OF 

THE  FIRST  NATIONAL  BANK 

OF  MILWAUKEE 

AND 

FIRST  TRUST  COMPANY 


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I  ..I 

I         Silver  and  gold  are  not  the  only  coin;  virtue  passes  current  all  over  the  world. — Euripides.        | 


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HJOIUing 


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Capital  and  Surplus 
$7,500,000.00 


Established  1863 

THE  First  and  Old  Detroit 
National  Bank  is  the  lead- 
ing commercial  bank  of 
Detroit  and  Michigan,  and  is 
one  of  the  six  largest  national 
banks  West  of  the  Atlantic 
Seaboard.  With  its  strength, 
organization  and  equipment,  it 
is  in  a  position  to  meet  the 
requirements  of  merchants, 
manufacturers  and  individuals 
seeking    banking   connections. 

Owing  to  the  breadth  and  num- 
ber of  its  bank  connections,  it 
has  wide  facilities  for  handling 
Michigan  business  and  offers 
its  services  to  banks  and  bank- 
ers, whose  accounts  we  invite. 


ALEX.   McPHERSON,  Chairman  of  the  Board 
EMORY  W.   CLARK,   President 


WM.  J.  GRAY, 

Vice-President 

WALTER  G.  NICHOLSON, 

Cashier 

WM.  T.  DeGRAFF, 

Vice-President 

W.  A.  McWHINNEY, 

Asit. 

Cashier 

FRANK  G.  SMITH, 

Vice-President 

ELMER  E.  FORD, 

Asst. 

Cashier 

MERLE  B.  MOON, 

Vice-President 

FRED  H.  TALBOT, 

Asst. 

Cashier 

JOHN  W.  STALEY, 

Vice-President 

F.  F.  CHRISTIE, 

Asst. 

Cashier 

EDWARD  C.  MAHLER, 

Vice-President 

RUSSEL  E.  SMITH, 

Asst. 

Cashier 

JOHN  H.  HART, 

Vice-President 

JAMES  A.  WILSON, 

Asst. 

Cashier 

I  Credit  is  nothing  but  the  expectation  of  money  within  some  limited  time. — Locke. 


Capital,  $2,000,000.00 
Surplus,  $2,000,000.00 

Resources,  $36,000,000.00 


F.  O.  Watts         -         -         - 
T.  Wright      - 
R.  S.  Hawes 

F.  K.  Houston     - 
W.  W.  Smith 
J.  R.  Cooke 


President 
Vice-President 
Vice-President 
Vice-President 

Vice-President 
Cashier 


D'A.  P.  Cooke     - 
H.  Haill 

E.  C.  Stuart 


Assistant  Cashier 
-  Assistant  Cashier 

Assistant  Cashier 


M.  E.  Holderness    -         Assistant  Cashier 
W.  C.  Tompkins       -  -         Auditor 


]m\\\\\\\\\\\\\\\\\\\N\\\\\\^^^^^ 

I  Let  us  all  be  happy  and  live  within  our  means,  even  if  we  have  to  borrow  the  money  to     ^ 

I      do  it  with. — Artemus  Ward.  I 


Fort  Dearborn 
National  Bank 

Chicago,  Illinois 


^"^^A^K      REot^^' 


UNITED  STATES  DEPOSITARY 


Capital  $2,000,000  Surplus  and  Profits  $1,000,000  Deposits  $35,000,000 

Comparative  Showing  of  Deposits 

March  29,  1910  .  $15,041,357.21  January       13,  1914 

March  7,1911.    21,574,956.79  December  31,  1914 

February  20,  1912.    26,207,446.32  March         4,1915 

February  4,1913.    30,499.714.20  May            1,1915 


$29,727,922.06 
29,531,375.00 
29,844,165.94 
31,803.027.83 


OFFICERS 
William  A.  Tilden,  President 

Nelson  N.  Lampert,  Vice-President      Geo.  H.  Wilson,  Cashier 
J.  Fletcher  Farrell,  Vice-President 
Henry  R.  Kent,  Vice-President 
John  Fletcher,  Vice-President 
M.  Jacobowsky,  Vice-President 


Charles  Fernald,  Assistant  Cashier 
W.  W.  LeGrOS,    Assistant  Cashier 
Charles  L.  Boye,  Assistant  Cashier 
Wm.  L.  McKee,  Assistant  Cashier 


Harry  Lawton,  Manager  Foreign  Dept. 

We  particularly  desire  the  accounts  of  banks.     Our  officer  in    charge  is  personally  ac- 
quainted with  conditions  in  your  section.     We  know  your  wants  and  wish  to  serve  you. 


|N\\v\\\\\\\\\\\\\\\\\\\\\\^^^^^ 

I  Put  not  your  trust  in  money  but  put  your  money  in  trust.— Holmes. 

I 

W\\\\\\\\\\\\\\\\\\\\\\\\\m\^^^^ 


XXV 


The  Capital  National  Bank 

^  ST.   PAUL,   MINNESOTA 


Q  This  bank  —  conducted  in  a 
broadly  conservative  manner — 
offers  every  advantage  in  service 
and  every  consideration  consis- 
tent with  sound  banking.  A 
business  connection  with  us 
cannot  fail  to  be  of  mutual 
advantage  and  satisfaction. 
<5  Correspondence  is  invited. 


JOHN  R.  MITCHELL 
JEROME  W.  WHEELER 
WILLIAM  B.  GEERY 
JAMES  L.  MITCHELL      - 
EDWARD  H.   MILLER      - 
GEORGE  M.  BRACK 
C.  EDWARD  JOHNSON   - 


President 

Vice-President 

Vice-President 

Cashier 

Ass't  Cashier 

Ass't  Cashier 

Ass't  Cashier 


Capital,  Surplus  and  Profits,  $750,000.00 
Deposits,  $6,400,000.00 


■ 


m\\\\\\\\\\\\\\\\N\\N\\\\\^^^^^^ 

I  The  only  road,  the  sure  road — to  unquestioned  credit  and  a  sound  financial  condition  is     | 


the  exact  and  punctual  fulfilment  of  every  pecuniary  obligation,  public  and  private,  according 


The  Mechanics-American  National  Bank 

of  St.  Louis 


An  individual  banking  connection  in  St.  Louis  is  as  essential  under 

the  new  banking  system  as  heretofore.     We  offer  correspondents 

the  benefit  of  our  equipment  and  superior  facilities  for  handling  their 

business  in  this  section.     May  we  serve  you  ? 


Capital $  2,000,000 

Surplus 2,500,000 

Resources 35,500,000 


WALKER  HILL.  President 


FRANK  0.  HICKS.  Vice-President 
JACKSON  JOHNSON.  Vice-President 
EPHRON  CATLIN.  Vice-President 
JOSEPH  S.  CALFEE,  Cashier 


CHARLES  L.  ALLEN.  Assistant  Cashier 
JAMES  R.  LEAVELL.  Assistant  Cashier 
PHILIP  H.  MILLER.  Assistant  Cashier 
WILLIAM  H.  HETTEL,  Assistant  Cashier 


p\\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ 

I  ■  .  . 

I  We  are  content  to  take  this  on  your  credit. — Hooker. 

I 


XXVI I 


y 


Minneapolis 

^ 


FIRST  AND   SECURITY 
NATIONAL  BANK 

Where  Capital  and  Mind  Unite 
To  Offer  Banking  Service  Right 

Capital $10,000,000 

Surplus  and  Undivided  Profits         4,800,000 

Your  Account  Solicited 


m\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ 


I  Credit  is  the  roadway  along  which  nations  advance  from  barbarism  to  civilization. — Pratt, 


• 


Resources  -  $10,000,000.00 


PEOPLES 
BANK 


BUFFALO 


^ 


QEND  us  your  Buffalo 
^^  business,  if  intelligent 
handling  of  items  and  rea- 
sonable rates  appeal  to  you. 


A.  D.  BISSELL,  President 

C.  R.  HUNTLEY,  Vice-President 

E.  H.  HUTCHINSON,  Vice-President 

E.  J.  NEWELL,  Vice-President 

HOWARD  BISSELL,  Cashier 

C.  G.  FEIL,  Asst.  Cashier 

A.  J.  ALLARD,  Asst.  Cashier 

G.  H.  BANGERT,  Asst.  Cashier 


m\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ 

I  Credit  has  done  more,  a  thousand  times,  to  enrich  ihe   nations  than  all  the  mines  in   | 

]  S  I        the  world.  -  Webster.  | 

XXIX 


Corner  Liberty  &  West  Streets 


COAL  ^  IRON 

NATIONAL    BANK 

of  the  City  of  New  York 

Capital $1,000,000.00 

Surplus  and  Profits  (Earned)  -        671,000.00 

Depository  of  the  United  States,  City  and  State  of  New  York 


HOARD   OF   DIRECTORS 


Francis  J.  Arend,  Pres. 
Wm.  G.  Besler     .     .     .      Pres.  Central  R.  R.  of  N.  J. 

M.  F.  Burns Pres.  Burns  Brothers 

George  H.  Campb-U  Asst.  to  Pres.  B.  &  O.  R.  R.  Co. 
Alfred  A.  Cook    .     .     .      Leventritt,  Cook  &  Nathan 

Henry  L.  d-;  Forest de  Forest  Brothers 

Allison  Dodd Dir.  Burns  Brothers 

Joseph  A.  Flynn,  V.-P.  Fidelity  and  Dep.  Co.  of  Md. 

W.  J.  Harahan Pres.  Seaboard  Air  Line 

George  D.  Harris  ....  George  D.  Harris  &  Co. 
Henry  L.  Joyce.  Mgr.  Dir.  Bklyn.  8s  Man.  Ferry  Co. 
John  C.  Juhring  .  .  Pres.  Francis  H.  Leggett  8b  Co. 
John  L.  Kemmerer  ....  Whitney  8e  Kemmerer 
Albert  B.  Kerr  .  .  Zabriskie,  Murray,  Sage  8b  Kerr 
E.  E.  Loomis  Vice-Pres.  D.,  L.  8b.  W.  R.  R.  Co. 


DeLaval  Separator  Co. 

Jan.es  H.  McGraw  .     .  Pres.  McGraw  Publishing  Co. 
John  A.  Middleton  .     .  V.-P.  Lehigh  Valley  R.  R.  Co. 

Edwin  H.  Peck E.  H.  Be  W.  J.  Peck 

Wm.  B.  Randall.  Pres.  Secur.  Transf.  and  Registrar  Co. 

John  T.  Sproull President 

John  W.  Sullivan     .     .     .  Pres.  John  W.  Sullivan  Co 

Wm.  H.  Taylor Pres.  St.  Clair  Coal  Co. 

David  Taylor       Vice-President 

Stephen  H.  Voorhees   .      Agt.  Royal  Bank  of  Canada 

G.  O.  Waterman Treas.  C.  R.  R.  of  N.  J. 

San:  uel  Weil Samuel  Weil  8b  Son 

Wm.  H.  Williams     .        V.  P.  Delaware  8b  Hudson  Co. 

Frank  D.  Wilsey Pres.  N.  Y.  Boat  Oar  Co. 

Wm .  H.  Woodin.  Asst.  to  Pres.  Amer.  Car  and  Fdy.  Co. 


MEMBER   NEW  YORK   CLEARING   HOUSE   ASSOCIATION 


;m\\\\\\\\\\\\\\\\\\\\\\\^^^^^ 

I  Tomorrow,  Sir,  I  wrestle  for  my  credit,  and  he  that  escapes  me  shall  acquit  him  well. —     ^  ^ 

I     Shakespeare,  As  You  Like  It.  1;  ' 

I  I 

v\\\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^^ 


i 

II 


XXX 


■Di 


©Ij0  Market  mh  Julton 
Natinnal  lattk 


nf  Nrm  fork 


(1-42) 


A  Sixty- Year  Old  Bank 


FOR  two  generations  this  institution  has  had  a 
steady,  conservative,  profitable  growth,  enjoying 
to  the  fullest  extent  the  confidence  and  good  will  of 
the  business  community.  Its  reputation,  resources  and 
facilities  are  at  the  command  of  banks,  bankers  and 
trust  companies  desiring  a  New  York  correspondent. 

Capital  and  Surplus,  $3,000,000 

Resources  over    Fourteen    Million    Dollars 

OFFICERS 
ALEXANDER   GILBERT,  President  JOHN  H.   CARR,  Cashier 

ROBERT  A.  PARKER,  Vice-President         WM.   M.  ROSENDALE,  Assistant  Cashier 


m\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^  ^ 

I             Credit  has  done  more,  a  thousand  times,  to  enrich  the  nations  than  all  the  mines  in  the      ^  | 

I     world. — Webster.  |  *" 

XXXI 


m%  * 


The  Corn    Exchange    National 
Bank  of  Chicago 

Capital $3,000,000.00 

Surplus 5,000,000.00 

Undivided  Profits  .      .    1,900,000.00 


OJic 


ERNEST  A.  HAMILL  ....  Pre?ident 
CHARLES  L.  HUTCHINSON  Vice-President 
CHAUNCEY  J.  BLAIR  .  .  Vice-President 
D.  A.  MOULTON  ....  Vice-President 
B.  C.  SAMMONS     ....     Vice-President 


FRANK  W.  SMITH Secretary 

J.  EDWARD  MAASS Cashier 

JAMES  G.  WAKEFIELD  .  Assistant  Cashier 
LOUIS  E.  GARY  .  .  .  Assistant  Cashier 
EDWARD  F.  SCHOENECK  Assistant  Cashier 


Directors 


CHARLES  H.  WACKER 
CHAUNCEY  J.  BLAIR 
EDWARD  B.  BUTLER 
BENJAMIN  CARPENTER 
WATSON  F.  BLAIR 
CHARLES  L.  HUTCHINSON 


MARTIN  A.  RYERSON 
CHARLES  H.  HULBURD 
CLYDE  M.  CARR 
EDWIN  G.  FORMAN 
EDWARD  A.  SHEDD 
ERNEST  A.  HAMILL 


Foreign  Exchanrre        Letters  of  Credit        Cable  Transfers 


W  I  Tomorrow,  Sir,  I  wrestle  for  my  credit,  and  he  that  escapes  me  shall  acquit  him  weL —     ^  | 

1  I      Shakespeare,  As  You  Like  It.  |  | 

v^    SW\\\\\\\\\\\\\\\\\\\\\\\^^^^^^ 


THE  FIRST  NATIONAL  BANK 

OF  ST.  PAUL,  MINN. 

Capital  and  Surplus,  ^5,000,000.00  Resources,  ^40,000,000.00 

OLDEST  BANK  IN  MINNESOTA 


OFFICERS 

LOUIS  W.  HILL,  Chairman  Board  of  Directors 
EVERETT  H.  BAILEY  .     .     .  President        CHARLES  H.  BUCKLEY    .    .     Cashier 
CYRUS  P.  BROWN    .     .     Vice-President         EDWIN  MOTT      .     .     Assistant  Cashier 
EDWARD  O.RICE    .     .     Vice-President         HENRY  B.  HOUSE     .     Assistant  Cashier 
OTTO  M.  NELSON    .     .     Vice-President         CHARLES  E.  GALL   .    Assistant  Cashier 

DIRECTORS 

JAMES  J.  HILL,  Great  Northern  Railway  Company 

LOUIS  W.  HILL     .     .     President,  Great  Northern  Ry.  Co.  ALBERT  L.  ORDEAN     Pres.,  First  National  Bank,  Duluth 

EDWARD  N.SAUNDERS,  Jr.,  Pres.,  Northwestern  Fuel  Co.  RICHARD  A.  JACKSON  Vice  Pres.,Great  Northern  Ry.Co. 

CHAS.  W.  AMES    .     .     .      President,  West  Publishing  Co.  DAVID  C.  SHEPARD,  II     .     Finch,  Van  Slyck  McConville 

EVERETT  H.  BAILEY President  JOHN  J.  TOOMEY        Vice  Pres.,  Northwestern  Trust  Co. 

CYRUS  P.  BROWN Vice-President  GEORGE  T.  SLADE      Vice  Pres.,  Northern  Pacific  Ry.  Co. 

THEO.  A.  SCHULZE  .    .     President,  Foot,  Schulze  &  Co.  JAMES  T.  CLARK      Vice  Pres.,  C,  St.  P.,  M.  &  O.  Ry.  Co. 

CHAS.  W.  GORDON  .     .      President,  Gordon  &  Ferguson         HALE  HOLDEN Pres..  C.  B.  &  Q.  R.R.  Co. 

WATSON  P.  DAVIDSON Capitalist  PIERCE  L.  HOWE      Pres.,  Imperial  Elev.  Co.,  Minneapolis 

WALTER  BUTLER Butler  Bros.  OTIS  EVERETT      .    .    .      Pres.,  Northwestern  Trust  Co. 

WILLIAM  B.  DEAN Nicols,  Dean  &  Gregg  JULE  M.  HANNAFORD       Pres.,  Northern  Pacific  Ry.  Co. 

ALBERT  N.ROSE Jos.  UUman  MARTIN  R.  BROWN     Great  Northern  Railway  Company 


M  m\\\\\\\\\\N\\\\\\\\N\\\\\\\\^^^^^ 

I  I  Credit  is  nothing  but  the  expectation  of  money  within  some  limited  time. —  Locke 

!\\\\\\\\\\\\\\\\\\\\\\\\\\\\V\^^^^^ 


XXXI 1 1 


Central  Trust  Company  of  Illinois 

125  West  Monroe  Street 
Chicago 

Capital,  Surplus  and  Profits,     $   6,000,000 
Deposits 40,000,000 


ACCOUNTS  OF  BANKS  AND  BANKERS  RECEIVED  UPON  FAVORABLE  TERMS. 
PARTICULAR  ATTENTION  GIVEN  TO  COLLECTIONS. 


OFFICERS 


Charles  G.  Dawes, 

President 

Joseph  E.  Otis, 

Vice-President 

Edwin  F.  Mack, 

<(          (( 

William  T.  Abbott, 

11         (( 

Walter  H.  Wilson, 

U                    li 

William  R.  Dawes, 

Vice-President  and  Cashier 

J.    E.    LiNDQUIST, 

Vice-President 

Landon  C.  Rose, 

u              u 

William  C.  Cook, 

"         " 

T.  C.  Neal, 

a               a 

Fred  B.  Woodland, 

ti               (( 

L.  D.  Skinner, 

Assistant  Cashier 

Wm.  W.  Gates, 

a              (1 

Jno.  W.  Thomas, 

a              u 

Harry  R.  Moore, 

"               " 

Addison  Corneau, 

"               " 

Howard  S.  Camp, 

"               " 

J.  H.  MussoN, 

((               u 

Albert  G.  Mang, 

Secretary 

William  G.  Edens, 

Assistant  Secretary 

Aksel  K.  Bodholdt, 

It                    a 

John  L.  Lehnhard, 

Assistant  Trust  Officer 

Lloyd  R.  Steere, 

Probate  Officer 

Robt.  H.  Berry, 

Auditor 

DIRECTORS 

A.  J.  Earling 
Arthur  Dixon 
Charles  T.  Boynton 
Alexander  H.  Revell 
S.  M.  Felton 
T.  W.  Robinson 
Chandler  B.  Beach 
Max  Pam 
Z.  G.  Simmons 
H.  a.  Langhorst 
A.  Uhrlaub 
Howard  G.  Hetzler 
Walter  H.  Wilson 
Joseph  E.  Otis 
George  Woodland 
Burton  F.  Peek 
James  W.  Stevens 
W.  O.  Johnson 
R.  Floyd  Clinch 
William  C.  Boyden 
c.  b.  scoville 
A.  R.  Barnes 
Landon  C.  Rose 
A.  M.  Johnson 
Charles  G.  Dawes 


w\\\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^  ^^ 

I  Strangers  used  to  credit  and  trust  the  poor  inhabitants,  which  had  not  ready  money. —     | 

I      Henry  VIII. 


XXXIV 


The  First  National  Bank 
of  Boston 

Established  1874 

Capital  $5,000,000       Surplus  and  Profits  $12,000,000 
Deposits  $86,000,000 


OUR  Foreign  Exchange  Depart- 
ment offers  complete  facilities  for 
financing  the  exportation  and  importa- 
tion of  merchandise. 

With  dired  connedions  throughout 
Europe,  South  America  and  the  Far 
Ea^,  we  are  prepared  to  offer  excep- 
tional colledion  facihties  and  secure 
the  late^  reports  on  trade  opportunities 
and  general  conditions. 

We  transfer  money  to  all  parts  of 
the  world  and  buy  and  sell  Bills  of  Ex- 
change and  Cable  Transfers. 

We  issue  Commercial  Letters  of 
Credit  in  Dollars,  Pounds  SterHng, 
Marks,  Francs,  Lire  or  other  currencies. 

Our  Travelers'  Letters  of  Credit 
and  Travelers'  Cheques  are  available 
everywhere. 


Put  not  your  trust  in  money  but  put  your  money  in  trust. — Holmes. 


Modern  Banking  Service 


WE  are  prepar- 
ed to  give  the 
merchants  and  banks 
throughout  this  dis- 
trict such  service  as 
will  enable  them  to 
handle  their  domes- 
tic and  foreign  busi- 
ness with  economy 
and  dispatch. 


Correspondence  and  Interviews  Solicited 


American  National  Bank 

Richmond,  Virginia 

Capital  and  Surplus,  $1,600,000.00 


I            Let  us  all  be  happy  and  live  within  our  means,  even  if  w^e  have  to  borrow^  the  money  to       y 

I   do  it  with.— Artemus  Ward.  | 

1  i 
m\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^^ 


XXXVI 


FIRST 

NATIONAL 

BANK 


AND 


FIRST 

TRUST  a 

SAVINGS  CO 


CLEVELAND 


COMBINED  RESOURCES 
OVER  $  S2.000.000.00 


m\\\\\\\\\\\\\\\\\\\\\\^^^^^^ 

I  He  traded  largely;  his  credit  on  the  Exchange  of  London  stood  high,  and  he  had  accu-    ^ 

^  I       mulated  an  ample  fortune. —  Macaulay.  | 

''"~~~  ^^^^^^^^^^^^^^ 


Merchants  National 

Bank,  Burlington,    Iowa 

Capital,       -       -       $100,000.00 
Surplus  and  Prof  its,    130,000.00 


J.  L.  Edwards 
W.  E.  Blake 
James  Moir     . 
Alex.  Moir 
H.  J.  Hungerford 
F.  L.  Houke    . 
C.  L.  Fulton    . 


■ 


.      President 

Vice-President 

Vice-President 

Vice-President 

Cashier 

Ass't  Cashier 

Ass't  Cashier 


Directors 

W.  E.  Blake,  Chairman 

H.  A.  Brown  W.  W.  Copeland 

James  Moir  Alex.  Moir 

W.  C.  Tubbs  J.  L.  Waite 

J.  L.  Edwards 


w\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ 

I  Tomorrow,  Sir,  I  wrestle  for  my  credit,  and  he  that  escapes  me  shall  acquit  him  well. —     ^ 

I     Shakespeare,  As  You  Like  It. 


The  National  Bank  of 
Commerce  in  St.  Louis 


TOM  RANDOLPH 

Chairman  of  the  Board 

JOHN  C.  LONSDALE,  President  W.  L.  Mcdonald,   Vice-President 

W.  B.  COWEN,  Vice-President  J.  A.  LEWIS,  Vice-President  and  Cashier 


Capital  and  Surplus 

$12,000,000.00 


/^UR  policy  is  to  extend  every 
^^^  facility  and  service  to  finan- 
cial institutions  for  making  col- 
lections and  carrying  reserve  ac- 
counts, assurance  being  afforded 
that  each  transaction  will  be 
consummated  on  the  basis  most 
advantageous  to  correspondents. 


^  ^  Having  credit  enough  with  his  master  to  provide  for  his  own  interest,  he  troubled  not     | 

I     himself  for  that  of  other  men. — Clarendon.  ^ 

v\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^^ 


Mutual  Benefit  Life  Insurance  Company 


1845 


of  Newark,  N.  J. 

Frederick  Frelinghuysen,  President 


1915 


The  Leading  Annual  Dividend  Company 

Satisfactory  Service  to   Policyholders  for   70  Years 

Paid  Policyholders  Since  Organization  in  1845  Over  ^350,000,000 

Purely  Mutual  Liberal  Policies  Low  Rates  Large   Dividends 

New  Benefits  as  adopted  extended  so  far  as  possible  to  old 

Policyholders 

The  Mutual  Benefit's  Accelerative  Endowment  Plan 
is  unique  and  is  unequalled 


I  Send  for  leaflet  "What  Bankers   Think   of  the  Mutual  Benefit" 

^  m\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ 

^  »  Manufactures  were  rude,  credit  almost  unknown;  society  therefore  recovered   from  the     ^ 

^  k     shock  of  war  almost  as  soon  as  the  actual  conflict  was  over. — Macaulay.  ^ 

^  Wm\\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^^ 


i 


Southern  PacIfic  Steamships 


I 


New  York  and  New  Orleans 

Make  these  five  delightful  days  at  sea  on  a  Southern 
Pacific  Steamship  a  part  of  your  trip  to  and  from  the 

California  Elxpositions 

Suites,  Staterooms,  Baths  and  Promenade  decks.  Time  for 
stop  over  at  quaint  New  Orleans,  most  picturesque  of  American 
cities;  thence  overland  through  the  wonderful  southwest  on  the 

Sunset  Limited 

Every  Day  in  the   Year — No  Extra  Fare 

Southern  Pacific — Sunset  Route 

"The  Exposition  Line — 1915" 

New  Orleans,  Los  Angeles,  San  Diego,  San  Francisco 

Oil-burning  locomotives,  rock  ballasted  roadbed  —  mean  no 
cinders,  no  dust,  permitting  open  windows  all  the  way. 
Electric  safety  signals.     Through  Dining  and  Observation  Cars. 

Write  for  full  information  and  literature 

L.  H.  Nutting,  General  Passenger  Agent 

366  Broadway,  at  Franklin  St.      1158  Broadway,  at  27th  St.      39  Broadway,  near  Wall  St 


i 


I  Silver  and  gold  are  not  the  only  coin ;  virtue  passes  current  all  over  the  world. — Euripides.         ^  ;sj§^ 

m\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ 


■ 


i^ 


^ 


i' 


The 

Citizens 

Central 

National 

Bank 


■t;t:iffll 


In  the  Centre 
of  the 
Down  Town 
Wholesale 
District 


320  BROADWAY,  NEW  YORK 

Between  Worth  and  Pearl  Streets 


Capital  Stock  -  -  - 
Surplus  and  Profits  - 
Deposits,  June  23,  1915 


$  2,550,000.00 

2,537,864.00 

26,891,152.00 


AMBROSE  R.  ADAMS 
F.  M.  BACON,  Jr.,  Vice-President 
CHARLES  L.  BERNHEIMER 
GARRARD  COMLY,  Vice-Pres. 
RALPH  L.  CUTTER 


riRECTORS 

OTTO  L.DOMMERICH 
FREDERICK  T.  FLEITMANN 
WILLIAM  S.  GRAY 
ROBERT  B.  HIRSCH 
DARWIN  P.  KINGSLEY 
EDWIN  S.  SCHENCK,  President 


WALTON  P.  KINGSLEY 
AUGUSTUS  F.  LIBBY 
WM.  FELLOWES  MORGAN 
CHAS.  ALLEN  MUNN 
FRANK  PRESBREY 


UNION  NATIONAL  BANK 

PHILADELPHIA 


-V 


W,  H 

.  Carpenter,  President 

T.  H. 

Conderinail,  Vice-President 

Louis  N.  Spielberger,  Cashier 

John 

W.  Mink,  Asst.  Cashier 

Capital 
$500,000 

Surplus 
$400,000 

Deposits 
$5,000,000 

ACCOUNTS  or   IJANIvS,    llANIvKK!-^.  CORPORATIONS  ^ 

AND  INDIVIDUALS  SOLICITED  1 

WN\\\\\\\\\\\\\\\\\\\\\\\^^^^^  ^ 

I  However  gradual  may  be  the  growth  of  confidence,  that  of  credit  requires  still  more  time     |  ^ 

I      to  arrive  at  maturity. — Disraeli.  |  ^ 

fcv\\\\\\\\\\\\\\\\\\\\\\^^^^^^  ^ 

XUl 


□ 


THE 

NATIONAL  UNION  BANK 

OF  bosto:n^ 

CAPITAL,  SURPLUS  AND  PROFITS  $   2,212,000.00 
TOTAL  RESOURCES .  13,200,000.00 

HENRY  S.  GREW President 

THEOPHIIiUS  PARSONS  .    .    .  Vice-President 
CHARLES  P.  BL.1NN,  Jr.     .    .  Vice-President 

WII^IilAM  S.  B.  STEVENS Cashier 

ARTHUR  E.  FITCH   .    .    .    ASSISTANT  Cashier 


I 


A  BANK  OF  MEDIUM  SIZE,  WEIili  ORGANIZED   TO  GIVE  THE  BEST 
OF  SERVICE.      ACCOUNTS  SOLICITED 


PERSONAL  ATTENTION 

There  is  no  more  important  feature  of  service  in  banking  than  personal 
attention  devoted  to  the  requirements  of  every  customer. 

For  this  reason  the  Chicago  Savings  Bank  and  Trust  Company  places  its 
complete  facilities  in  all  branches  of  banking  and  trust  company  service 
at  your  disposal  and  guarantees  the  most  careful  attention  to  every  de- 
tail of  business  entrusted  to  its  care. 

We  are  especially  equipped  to  handle  business  in  the  Chicago  district 
and  cordially  invite  correspondence  regarding  our  ability  to  serve  you. 

CHICAGO  SAVINGS  BANK  AND  TRUST  COMPANY 

STATE   AND   MADISON    STREETS 

CHICAGO 


Edward  P.  Bailey, 
John  A.  McCormick,     - 
Raymontd  E.  Durham,    - 
William  M.  Richards,  - 
William  A.  Nicol,  - 
Edward  J.  Prescott,    - 


OFFICERS 

Lucius  Teter,  President 
Vice-President  John  C.  Armstrong, 

Vice-President 
Vice-President 
Cashier 
Asst.  Cashier 
Secretary 


F.  O.  Birney, 
C.  H.  Fox,  - 
W.  T.  Bacon, 
William  T.  Anderson, 


-  Asst.  Secretary 
Asst.  Secretary 

-  Asst.  Secretary 
Mgr.  Bond  Dept. 

Auditor 


CAPITAL, 


H.  L.  ScHMiTZ,     Mgr. .Real  Estate  Loan  Dept. 
$1,000,000 


I 
I 

I 


w\\\\\\\\\\\\\\\m\\m\\\\^^^^^^^ 

I  Credit  has  done  more,  a  thousand  times,  to  enrich  the  nations  than  all  the  mines  in     | 

I     the  world. — Webster.  | 

m\\\\\\\\\\\\\\\\\\\\mm\\^^^^^^ 


XUll 


THE  LIVE  STOCK  SfflSE  BANK 


OF    CHICAGO 

CAPITAL  AND  SURPLUS    -    $   1,750,000 
RESOURCES 14,500,000 

WM.  A.  HEATH,  PRESIDENT 
G.  A.  RYTHER,  VICE-PRESIDENT  M.  A.  TRAYLOR,  VICE-PRESIDENT 

G.  F.  EMERY,  CASHIER  A.  W.  AXTELL,  ASST.  CASHIER 

H.  E.  HERRICK,  ASST.  CASHIER  L.  L.  HOBBS,  ASST.  CASHIER 

BY  SENDING  YOUR   LIVE  STOCK   BUSINESS   DIRECT  TO   US 
WE   WILL    SAVE    YOU    TIME    AND    INTEREST    IN     HANDLING 


Established  1833 

Webster  and  Atlas 
National  Bank 

BOSTON,  MASS. 

Invites  correspondence  with  Banks,  Corporations  and  Individuals  desiring 

A  STRONG  BANK  OF  DEPENDABLE  SERVICE. 


Capital 
$1,000,000 


Surplus  and 
Profits 

$1,260,000 


Boston  City  Notes  and  Drafts  promptly  and  personally  presented. 

Member  of  the  Clearing  House  and  Federal  Reserve  Bank  of  Boston, 

thus  insuring  direct  collection  service  for  practically 

every  point  in  New  England. 

Careful   attention  to  inquiries  for  credit  information. 


OFFICERS: 

AMORY  ELIOT,  President  RAYMOND  B.  COX,  Vice-President 

JOSEPH  L.  FOSTER,  Cashier  ROBERT  E.  HILL,  Asst.  Cashier 


I  If  it  were  not  for  credit  many  people  who  possess  capital  but  have  no  means  of  utilizing    | 

I      it  themselves  would  find  it  useless  and  profitless. — John  Stuart  Mill.  I 

fc\\\\\\\\\\\\\\\\\\\\\\\^^^^^^ 


■ 


11 


■ 


UNION  EXCHANGE  NATIONALBANK 
,8?^NEWYORFC>, 


SYDNEY  H.  HERMAN 

President 

LOUIS  J.  WEIL 
Vice-President 

GEO.  B.  CONNLEY 
Asst.  Cashier 


Capital 
and  Surplus 

$2,000,000 


DAVID  NEVIUS 

Vice-President  and  Cashier 

OTIS  A. 

GLAZEBROOK,  Jr. 

Asst.  Cashier 


Total 
Resources 

$  1 4,000,000 


1 


^  Located  in  the  heart  of  the  new  textile  manufacturing  district,  and  many  of  our 
clients  being  manufacturers  and  merchants  whose  business  extends  throughout  the 
country,  we  receive  a  large  amount  of  out-of-town  checks.  ^  Banks  that  can  handle 
to  advantage  the  items  payable  in  their   locality   are   invited  to  correspond  with  us. 

MEMBER  NEW  YORK  CLEARING  HOUSE 


DROVERS  NATIONAL  BANK 

OF  CHICAGO 


Capital  and  Surplus, 


$1,000,000 


Has  for  over  thirty  years  rendered  quick 
and  efficient  service  to  its  correspondents 

RESOURCES  OVER  ELEVEN  MILLION  DOLLARS 


OFFICERS 

OWEN  T.  REEVES,  President 
M.  W.  TILDEN,  Vice-President 
GEO.  M.  BENEDICT,  Cashier 
F.  N.  MERCER,  Assistant  Cashier 
H.  P.  GATES,  Assistant  Cashier 


DIRECTORS 

WM.  A.  TILDEN 
L.  B.  PATTERSON 
AVERILL  TILDEN 
JOHN  FLETCHER 
GEO.  M.  BENEDICT 
WM.  C.  CUMMINGS 
BRYAN  C.  TIGHE 
M.  W.  TILDEN 
OWEN  T.  REEVES.  Jr. 


m\\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^^ 

I  If  you  were  ignorant  of  this,  that  credit  is  the  greatest  capital  of  all  towards  the  acquisition      | 

I    of  wealth,  you  would  be  utterly  ignorant — Demosthenes.  ^ 

m\\\\\\\\\\m\\\\\\\\\\^^^^^^ 

^^^^^^^^^^^^■^^^^^^ 

XLV 


n 


ACCEPTANCE  OF  TIME  DRAFTS 

A  Service  for  Bankers,  Manufacturers 
and  Merchants 


UNDER  the  new  banking  law  of  the  State  of  New  York,  this 
Company  is  authorized  to  accept  time  drafts  upon  it  by  other 
banking  institutions  and  by  merchants  and  manufacturers,  for  both 
domestic  and  foreign  business.  The  Company  can  therefore  offer  a  ser- 
vice which  may  prove  of  great  advantage  to  many  industrial  and  com- 
mercial concerns  whose  financial  requirements  are  seasonable  and 
against  commodities,  as  well  as  to  many  banks  and  trust  companies. 

The  Company  also  issues  dollar  and 
foreign  money  credits  to  cover  the 
importation  and  exportation  of  mer- 
chandise; purchases  and  sells  bills  of 
exchange;  issues  tourist  letters  of 
credit  and  travelers'  cheques,  and 
makes  payments  in  all  parts  of  the 
world,  either  by  mail  or  by  telegraph. 

The  Company  is  depositary  for  the 
cash  reserves  and  surplus  funds  of 
many  national  and  state  banks,  sav- 
ings banks  and  trust  companies;  also 
for  the  funds  of  many  important  cor- 
porations, estates,  firms  and  individ- 
uals; it  also  acts  as  agent,  trustee, 
custodian,  etc.,  for  individuals  and 
corporations. 

Call  or  write  in  regard  to  any  bank- 
ing or  trust  business. 

Bankers  Trust 
Company 

NEW  YORK 

Capital,  Surplus  and  Profits,  $  22,000,000 
Resources   -       .      -       -     200,000,000 


I       ..  .    .  11 

I  Credit  is  the  roadway  along  which  nations  advance  from  barbarism  to  civilization. — Pratt.         ^  | 


^^ 


ta\\\\m\\\m\\\\\\\m\\\\\\^^^^ 


XLVI 


The   National   Park   Bank 
of  new  york 


ORGANIZED  1856 


CAPITAL $    6,000,000 

SURPLUS  AND  PROFITS    .        15,000,000 
DEPOSITS,  JUNE  2,  1915      122,000,000 


OFFICERS 

PRESI DENT 

RICHARD    DELAFIELD 


GILBERT  G.   THORNE 

JOHN    C.    MCKEON 


VICE    PRESIDENTS 

JOHN    C.  VAN    CLEAF 
WILLIAM    O.   JONES 


CASHIER 

MAURICE    H.    EWER 

MANAGER    FOREIGN     DEPARTMENT 

GEORGE    H.    KRET2 


ASSISTANT    CASHIERS 

WILLIAM   A.    MAIN 
ERNEST   V.    CONNOLLY 
WILLIAM    E.    DOUGLAS 


FRED'K   O.   FOXCROFT 
J.    EDWIN    PROViNE 
HENRY    L.    SPARKS 


DIRECTORS 


STUYVESANT  FISH 
CHARLES   SCRIBNER 
EDWARD   C.   HOYT 
W.   ROCKHILL   POTTS 
AUGUST    BELMONT 
RICHARD    DELAFIELD 
FRANCIS    R.  APPLETON 
CORNELIUS  VANDERBILT 


ISAAC   GUGGENHEIM 
GILBERT  G.    THORNE 
JOHN    C.   MCKEON 
RICHARD    H.  WILLIAMS 
THOMAS    F.   VIETOR 
EDWARD   C.  WALLACE 
EDWIN    G.   MERRILL 
JOHN    G.  MILBURN 


This  Bank  issues  domestic  and  foreign  letters  of  credit  for  travelers, 
and  commercial  purposes.  Commercial  credits  are  given  either  in 
Dollars,  available  by  sight  or  time  drafts  on  this  bank,  or  in  other  cur- 
rencies, according  to  the  countries  where  settlement  is  desired. 

The  National  Park  Bank  has  been  engaged  in  the  South  American 
business  for  many  years  and  through  its  strong  list  of  connections  in 
all  sections  of  that  Continent  has  every  facility  for  dollar  exchange  there. 


v\\\\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ 


XLVII 


WE  OFFER  the  services  of  a  strong  and  con- 
servative institution,  with  experienced  officers, 
and  up-to-date  methods  for  the  transaction 
of  a  commercial  banking  and  trust  company  business. 


Capital  and 

Surplus 

over 

$2,000,000.00 


Total 

Resources 

over 

$11,000,000.00 


OFFICERS 

SAMUEL  S.    CONOVER,  President 

JOHN  W.   NIX,  Vice-President         GEORGE  HENRY   SARGENT,  Vice-President 

ANDREW  H.  MARS,   Secretary  STEPHEN  L.  VIELE,  Asst.  Secretary 

ARTHUR  W.  MELLEN,  Asst.  Secretary  and  Trust  Officer 


WILLIAM  H.  BARNARD 
JAMES  BUTLER 
JAMES  G.  CANNON 
SAMUEL  S.  CONOVER 
SAMUEL  CROOKS 
WILLIAM  C.  DEMOREST 
JAMES  M.  DONALD 
CHARLES  F.  DROSTE 
W.  J.  FULLERTON 
FRANK  A.  HORNE 


DIRECTORS 

EDWIN  E.  JACKSON,  Jr. 

ADOLPH  KASTOR 

JAMES  H.  KILLOUGH 

LEE  KOHNS 

HENRY  KROGER 

ANDREW  H.  MARS 

CHARLES  HENRY  MATTLAGE 

EDWARD  E.  MOBERLY 

VINCENT  S.  MULFORD 

JOHN  W.  NEX 


JOHN  A.  PHILBRICK 
ALEXANDER  M.  POWELL 
STEPHEN  K.  REED 
CHARLES  E.  RUSHMORE 
GEORGE  HENRY    SARGENT 
HAMPDEN  E.  TENER 
EDWARD  H.  TITUS 
D.  W.  WHITMORE 
JOHN  O.  WILLIAMS 
WILLIAM  ZIEGLER,  Jr. 


I 


m\\\\\\\\\\\\\\\\\\\\\^^^^^ 

I 


»\\\\\\\\\\\\\\\\\\\\\\\\\\\'^\\^^^^ 


The  only  road,  the  sure  road — to  unquestioned  credit  and  a  sound  financial  condition  is  | 
^  the  exact  and  punctual  fulfilment  of  every  pecuniary  obligation,  public  and  private,  according  to  | 
I    its  letter  and  spirit — Rutherford  B.  Hayes,  | 


XLVIII 


IRnlinQnd&Ca 


33  Pine  Street 

New  York 


Grant  facilities  whereby  American  Banks  may 

draw  direct  drafts  on  China,  Japan  and  other 

Oriental  Countries 


Correspondents  of 

Russo-Asiatic  Bank,  Hong-Kong 
Jordaan  &  Cie.,  Paris 

London  &  South  Western  Bank,  Ltd., 

London 


Finance  Corporations,  act  as  fiscal 

agents  and  underwrite  entire  issues 

of  securities. 


Redmond  Building 
New  York 


Investment  Securities 

Members  New  York  Stock  Exchange 


m\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^  m 

He  traded  largely;  his  credit  on  the  Exchange  of  London  stood  high,  and  he  had  accu-    |  M 


I       mulated  an  ample  fortune. — Macaulay.  |  • 


The  Equitable  Trust  Company 
Building 


Dollar 


This  Company  has  originated 
a  Dollar  Letter  of  Credit  which 
will  enable  the  American 
Traveler  to  draw  his  Dollar 
Draft  in  any  part  of  the  world 
and  secure  therefor  more 
foreign  money  than  any  form 
of  Traveler's  Credit  yet  offered 
to  the  public. 

CAPITAL  AND  SURPLUS 
Twelve  Million  Dollars 

T?F  EQUITABLE 
TRUST  COMPANY 

OF    NEW  YORK 

37  Wall  Street 

Established  1871 


New  York  Branches  Foreign  Branches 

COLONIAL  LONDON 

222  Broadway  95  Gresham  St.,  E.  C. 

FIFTH  AVENUE  PARIS 

618  Fifth  Avenue  23  Rue  de  la  Paix 


]m\\\\\\\\\N\\\\\\\\\\\^^^^^ 


I 


Tomorrow,  Sir,  I  wrestle  for  my  credit,  and  he  that  escapes  me  shall  acquit  him  well. 


«»  luiiiuiiuw,  oil,  1  wrcsiic 

I      Shakespeare,  As  You  Like  It.  « 


BROWN  BROTHERS  &  GO. 


NEW  YORK 


PHILADELPHIA 

Fourth  and  Chestnut  Streets 


AND 

BALTIMORE 

ALEXANDER  BROWN  &  SONS 

(All  connectsd  by  private  wire* 


BOSTON 

60  State  Street 


Members  of  the  New  York,  Philadelphia,  Boston  and  Baltimore  Stock  Exchanges 


STOCKS,  BONDS  AND 

INVESTMENT  SECURITIES 

BOUGHT  AND  SOLD 

LISTS  AND  STATISTICS  FURNISHED  ON  APPLICATION 


DEPOSIT  ACCOUNTS  of  American  Banks,  Bankers,  Firms,  and 
Individuals  received  on  favorable  terms.  CERTIFICATES  OF 
DEPOSIT  issued  payable  on  demand  or  at  a  stated  period. 

Arrangements  made  with  BANKS  AND  BANKERS  in  the  United 
States  by  which  they  may  ISSUE  THEIR  OWN  DRAFTS  ON 
ALL  FOREIGN  COUNTRIES. 

BILLS.  OF  EXCHANGE  and  CABLE  TRANSFERS  bought 
and  sold. 

Issue  TRAVELERS'  LETTERS  OF  CREDIT,  COMMERCIAL 
LETTERS  OF  CREDIT,  TRAVELERS'  CHEQUES,  avail- 
able everywhere. 

Collections  Made  on  All  Parts  of  the  World 


BROWN,  SHIPLEY  &  CO.,  LONDON 


HEAD  OFFICE 
FOUNDERS  COURT,  E.  C. 


OFFICE  FOR  TRAVELERS 
123  PALL  M.\LL,  S.  W. 


B  I  Having  credit  enough  with  his  master  to  provide  for  his  own  interest,  he  troubled  not 

«  I     himself  for  that  of  other  men.— Clarendon.  I  ^  11 

m\\\\\\\\\\\\\\\\\\\\\\\^^^^^ 


■ 


■ 


^1 


^^^ 


Broadway  Trust  Company 


WOOLWORTH  BUILDING,  NEW  YORK 
CAPITAL,  $1,500,000  SURPLUS,  $750,000 

Member  of  New  York  Clearing  House  Association 

FREDERIC  G.  LEE,  President 
DEPOSITS 

January  1,   1908  January  1,   1912 

$2,424,000  $5,150,000 

June  23,   1915 

$19,180,552 


July  1,  1914 

$16,213,000 


This  growth,  we  believe,  is  due  to  an  increasing  appreciation 
of  the  conservative  poHcy  of  this  company  and  to  the  close 
personal  attention  of  its  officers  to  the  interests  of  customers. 


1 

I  Manufactures  were  rude,  credit  almost  unknown;  society  therefore  recovered  from  the 

I     shock  of  war  almost  as  soon  as  the  actual  conflict  was  over. — Macaulay. 


:i 

111 
11 


I 


CONTENTS 


'^"JH^J'WjkjSj^  # 


,  855;  55=l.aHHr8H5J 


CHAPTER  I  PAGE 

Commercial  Paper  and  Bills  of  Exchange 3 


CHAPTER  II 


The  Credit  System 


CHAPTER  III 
The  Banks  and  the  Credit  System 10 


CHAPTER  IV 
Commercial  Paper  in  the  United  States 


12 


CHAPTER  V 
Commercial  Paper  in  the  Trades 19 

CHAPTER  VI 
The  Bank  Acceptance 37 

CHAPTER  VII 
Bank  Acceptance  As  Defined  by  the  Federal  Reserve  Board    47 

CHAPTER  VIII 
Definition  of  Commercial  Paper  Eligible  for  Rediscount 

with  the  Federal  Reserve  Banks 50 

CHAPTER  IX 
Bills  of  Exchange  in  England 53 

CHAPTER  X 
Commercial  Paper  in  Canada      . 57 

CHAPTER  XI 

Commercial  Paper  in  France 58 

CHAPTER  XII 
Commercial  Paper  in  Germany 61 


11 
111 

(I 
II 
III 

i 
III 
III 
11 

III 
III 
III 
II 
II 
11 
II 
II 
11 
II 
II 
II 
II 


■Di 


BERNHARD,  SCHOLLE 
^  COMPANY 

14  WALL  STREET 

NEW  YORK  LONDON 

MEMBERS  OF  NEW  YORK  STOCK  EXCHANGE 

PRIME    ACCEPTANCES 


WE  SOLICIT  INQUIRIES  FROM  INSTI- 
TUTIONS OR  OTHERS  INTERESTED  IN 
THE  PURCHASE  OR  SALE  OF  THE  AC- 
CEPTANCES OF  PRIME  BANKS,  TRUST 
COMPANIES  OR  BANKERS. 


INVESTMENT     BONDS 
SHORT    TERM    SECURITIES 


'\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ 


SWXWWWWWWV, 

I  The  only  road,  the  sure  road — to  unquestioned  credit  and  a  sound  financial  condition  is 


HE  change  in  the  methods  of  discounting  paper 
brought  about  by  the  Federal  Reserve  system  of 
banking  created  a  demand  for  an  up-to-date  work 
on  commercial  paper. 

To  meet  this  demand  the  Banking  Law  Journal 
publishes  herein  a  review  of  the  methods  of  dis- 
counting paper  under  the  old  system  of  banking,  as  compared 
with  the  new  methods  under  the  Federal  Reserve  Act. 

In  describing  the  difference  between  the  methods  so  long  ob- 
served in  this  country,  and  the  methods  in  foreign  countries,  we 
endeaver  to  point  out  the  advantages  and  simplicity  of  single 
name  paper,  as  against  the  two .  name  or  acceptance  form  of 
credit;  and  as  the  Bank  Acceptance  is  not  as  yet  generally  un- 
derstood in  this  country,  it  is  given  special  attention,  it  being 
predicted  by  bankers,  who  are  familiar  with  its  operations  in  the 
European  discount  market,  that  it  will  soon  become  one  of  our 
chief  credit  instruments. 

These  gentlemen  point  out  that,  there  being  a  tendency  to 
create  a  private  discount  market  here,  such  as  obtains  in  Europe, 
commercial  paper  that  is  eligible  for  rediscount  at  the  Federal 
Reserve  Banks  becomes  a  liquid  asset,  which  is  one  of  the  con- 
spicuous advantages  of  this  form  of  credit. 

Other  subjects  carefully  treated  are  The  Practical  Operation 
of  Foreign  Exchange,  The  Credit  System,  The  Banks  and  the 
Credit  System,  Commercial  Paper  in  the  Trades,  Bills  of  Ex- 
change and  Commercial  Paper  in  England,  Canada,  France, 
Germany  and  Japan.  The  authenticity  and  practicability  of  the 
work  is  vouched  for  by  the  fact  that  the  data  was  supplied  by 
thorough,  practical  foreign  exchange  men,  credit  men  in  banks 
and  industrial  houses  and  commercial  paper  dealers. 

The  Bank  Acceptance,  as  defined  by  the  Federal  Reserve 
Board  and  the  Board's  latest  ruling  on  this  form  of  credit  under 
date  of  July  15,  together  with  the  Board's  definition  of  commer- 
cial paper  eligible  for  rediscount,  are  given  in  full. 


Reduced  facsimile  American  Express  Company  Travelers'  Cheque 
Published  through  the  courtesy  of  the  American  Express  Company 


AMERICAN  EXPRESS  COMPANY 


9,749.999 


The  Travelers'   Cheque  system  was  originated  in   1891   by  the  American   Express   Company.     It  offers  a 
simple  and  convenient  way  of  carrying  money  while  traveling  either  at  home  or  abroad. 


CAN  YOU  USE  A  FORWARDING  AND  FINANCIAL  SERVICE 
WHICH  KNOWS  NO  GEOGRAPHICAL  LIMITATIONS? 


C  The  American  Express  Company  offers  to  bankers,  merchants  and  manu- 
facturers, a  service  as  complete  and  comprehensive  as  the  realm  of  business  itself. 

€L  The  whole  duty  of  its  30,000  employes  consists  in  looking  after  other  people's 
business.  They  are  neither  manufacturers  nor  merchandisers,  but  in  every  part 
of  the  commercial  world  they  are  facilitating  the  business  of  those  who  are. 

C.  Their  service  to  you  begins  where  your  organization  leaves  off.  They  attend 
to  all  phases  of  import  and  export  trade,  both  express,  freight  and  financial,  from 
the  issuance  of  the  through  bill  of  lading  to  the  collection  of  the  draft  or  invoice. 

C,  They  quote  inland  traffic  and  foreign  ocean  rates,  issue  foreign  and  domestic 
drafts  and  money  orders,  travelers'  cheques,  and  letters  of  credit.  They  transfer 
funds  by  telegraph  and  cable;  buy  and  sell  domestic  and  foreign  exchange;  collect 
bills  and  accounts;  serve  legal  papers;  pay  taxes;  execute  orders  for  purchase  and 
make  sales  on  consignment. 

C,  Their  service  embodies  that  technical  knowledge  so  essential  to  success  which 
only  experienced  men  can  give.  Through  the  American  Express  Company,  with 
its  exclusive  offices  in  the  principal  foreign  cities  and  correspondents  at  all  im- 
portant points,  it  is  a  simple  matter  to  establish  direct  contact  with  the  com- 
mercial activities  of  every  land. 


Chapter  I 


OMMERCIAL  paper,  as  the  term  is  used  in  banking  and  commercial 
transactions,  is  a  popular  rather  than  a  technical  expression,  employed 
to  designate  those  simple  forms  of  contract, — instruments  of  indebted- 
ness, which  are  treated  everywhere  as  equivalents  or  representatives 
of  money,  and  which  have  long  been  recognized  in  the  world's  com- 
merce and  by  the  courts  of  various  countries  as  essential  to  trade  and 
finance. 
These  instruments  in  their  inception,  transfer  and  payment,  are  governed  by  that 
code  of  laws  which  has  been  evolved  from  the  customs  of  merchants,  commonly  known 
as  the  ''  law  merchant. "     Exports  and  imports,  remittances  to  and  from  every  quarter 
of  the  globe,  payment  of  sums  large  and  small  between  parties  near  to  and  remote  from 
each  other,  are  made  through  the  medium  of  bills  of  exchange,  while  promissory  notes 
and  checks  have  universally  become  part  of  the  business  life  of  nations. 

Every  business,  corporate  and  private,  and  every  profession  in  some  form  or 
other,  makes  use  of  these  indispensable  instruments  of  transfer  and  are  bound  by 
the  laws  relating  thereto. 

Simple  as  these  instruments  may  seem,  the  rights  and  obligations  of  the  parties 
thereto  are  surrounded  by  a  complicated  mass  of  statute  law  and  judicial  decisions  which 
seek  to  jealously  guard  the  rights  and  enforce  the  obligations  of  the  parties  concerned. 
The  law  of  debt  is  as  old  as  history,  and  the  sanctity  of  obligations  is  the  founda- 
tion of  all  trade  and  commerce.  The  breaking  of  the  pledged  word  or  the  written 
promise  has  throughout  history  been  considered  a  disgrace  to  the  guilty  one  and  a 
menace  to  business. 

By  the  common  law  of  England,  a  chose  in  action  (meaning  a  claim  recoverable  at 
law)  could  not  be  assigned,  on  the  principle  that  if  such  debts  could  be  thus  trans- 
ferred, "pretended  titles  might  be  granted  to  great  men  whereby  right  might  be 
trodden  down  and  the  weak  oppressed,  which  the  common  law  forbiddeth."  The 
rule  was  first  relaxed  as  to  bills  of  exchange,  but  was  gradually  extended  to  notes  and 
other  securities,  until  the  rule  itself  disappeared. 

I         While  all  choses  in  action  are  now  transferable,  the  negotiable  instrument  is  the 
only  species  which  carries  by  transfer  a  clear  title  and  a  full  measure;  and  like  an  instru- 
ment under  seal  imports  a  consideration.     The  negotiable  instrument  has  the  following 
distinguishing  characteristics: 
I 


com^merciaL-'^'paper  and   bills   of   exchange 

(a)  As  to  title.  If  a  piece  of  personal  property  (chattel  personal)  or  a  wow-nego- 
tiable instrument  be  stolen,  no  purchaser  however  innocent  can  acquire  title  against  the 
true  owner.  If  a  negotiable  instrument  be  stolen,  and  transferred  by  the  thief  to  a  third 
person  in  due  course,  for  value,  before  maturity,  the  owner  may  hold  against  the  world. 

(b)  As  to  amount.  If  a  non-negotiable  instrument  be  assigned,  the  assignee  steps 
into  the  shoes  of  the  assignor,  and  if  the  same  has  been  paid,  or  is  subject  to  counter- 
claim, or  set-off,  against  the  maker,  such  counterclaim  is  good  against  the  assignee. 
But  commercial  paper  in  the  hands  of  a  bona-fide  holder  for  value  carries  the  right  to 
receive  the  face  amount,  and  is  subject  to  none  of  the  defenses  good  between  the  ori- 
ginal parties.  Commercial  paper  is  "a  currier  without  luggage,"  and  as  such  forms 
an  important  part  of  the  circulating  credit  medium  of  the  world. 

(c)  As  to  consideration.  Under  the  common  law,  an  instrument  under  seal  im- 
ported consideration,  by  virtue  of  the  solemn  ceremony  attending  its  execution.  No 
other  non-negotiable  instrument  does;  but  by  the  customs  of  merchants,  heretofore  men- 
tioned, a  bill  of  exchange  prima  facie  imports  a  consideration,  and  by  the  Negotiable  In- 
struments Law,  now  in  force  in  forty-two  states,  consideration  is  presumed.  As  be- 
tween the  immediate  parties  lack  of  consideration  may  be  shown  and  the  presumptive 
consideration  rebutted;  but  in  the  handsof  an  innocent  holder  for  value,  before  maturity, 
no  want  or  failure  of  consideration  can  be  shown.     Its  defects  perish  with  its  transfer. 

THE  BILL  OF  EXCHANGE 

Perhaps  the  best  definition  of  a  bill  of  exchange  yet  conceived  is  that  in  the 
English  Bills  of  Exchange  Act,  of  1882,  which  says:  "A  bill  of  exchange  is  an  un- 
conditional order  in  writing,  addressed  by  one  person  to  another,  signed  by  the 
person  giving  it,  requiring  the  person  to  whom  it  is  addressed  to  pay  on  demand, 
or  at  a  fixed  or  determinable  future  time,  a  sum  certain  in  money  to,  or  to  the  order 
of  a  specified  person,  or  to  bearer." 

By  the  same  act,  a  promissory  note  is  "an  unconditional  promise  in  writing  made* 
by  one  person  to  another,  signed  by  the  maker,  engaging  to  pay  on  demand,  or  at  a 
fixed  or  determinable  future  time,  a  certain  sum  in  money  to  the  order  of  a  specified 
person,  or  to  bearer."     The  one  is  an  order;  the  other  is  a  promise.     Both  have 
distinctive  functions  to  perform  in  the  financial  affairs  of  the  world. 

THE  PURPOSE  OF  THE  BILL  OF  EXCHANGE 

The  fundamental  purpose  of  the  bill  of  exchange  is  to  settle  debts  without  the 
transfer  of  money.  To  pay  a  debt  does  not  necessarily  mean  to  pass  over  the  money, 
but  to  cancel  the  obligation  by  any  of  the  processes  known  to  commerce  and  the  law. 
To  satisfy  one  debt  by  canceling  another  is  no  less  effective  as  a  means  of  payment  than 
the  shipping  of  gold  itself.  And  the  mutual  offsetting  of  debts  between  men  as  well 
as  nations  is  the  cheapest  means  of  payment  known.  Where  debts  between  immediate 
parties  are  canceled  by  book  accounts — goods  for  goods,  no  credit  instruments 
arise;  but  since  the  course  of  trade  does  not  make  the  immediate  offsetting  possible, 
bills  of  exchange  and  promissory  notes  come  into  being.  If  A  owes  B,  and  B  owes  C, 
A  may  pay  C  direct  and  cancel  B's  debt  to  C,  with  one  instead  of  two  transfers  of 
money  or  its  equivalent,  C  giving  B  credit  for  the  sum  received  from  A.  Or,  to  do  it 
in  a  banking  way,  B  ma}^  "draw  on"  A  to  the  order  of  C.  The  effect  of  the  draft 
would  be  to  say:  "A,  pa}^  to  C,  the  debt  you  owe  me,  B,  and  I  will  credit  you.'] 


COMMERCIAL    PAPER    AND    BILLS    OF    EXCHANGE 

To  illustrate  this  principle  as  it  applies  to  international  trade  and  foreign  exchange, 
suppose  that  The  Boston  Beef  Co.,  an  exporter  of  meat,  sells  The  Liverpool  Beef  Co., 
^10,000  worth  of  beef.  The  London  Steel  Co.,  knowing  nothing  of  the  transaction, 
sells  the  New  York  Razor  Co.  ^10,000  worth  of  Sheffield  steel.  Payment  for  these 
goods  can  be  made  in  one  of  two  ways:  either  by  shipping  two  sums  of  gold  across  the 
Atlantic,  with  the  attendant  risk  and  costs,  or  by  the  use  of  a  credit  instrument  in  the 
form  of  a  bill  of  exchange.  The  Boston  Beef  Co.  therefore  draws  up  a  document  as 
follows:  (illustrated  on  the  following  page). 


Boston,  August  1,  1914. 

At  sight  of  this  first  bill  of  exchange  (second  unpaid)  pay  to  the  order  of  New  York  Razor  Co. 
(importer  of  steel)  $10,000,  value  received  and  charge  to  account  of  Boston  Beef 

Co.  (ime^^fr  pf  meat),  to  Liverpool  Beef  Co.  (buyer  of  meat). 


Knowing  that  the  Razor  Company  desires  to  make  payment  of  its  debt  in  London, 
the  Boston  Beef  Co.  sells  this  bill  of  exchange  to  the  Razor  Company  and  receives  its 
money  for  the  shipment  of  beef.  The  Razor  Company  now  has  a  claim  against  the 
Liverpool  Beef  Company  and  good  title  to  the  funds  in  its  hands  which  are  due  to  the 
Boston  Beef  Co.  Therefore,  the  Razor  Company  sends  the  draft  properly  endorsed, 
to  the  London  Steel  Company,  its  creditor,  for  collection  and  credit.  The  London 
Steel  Company  thereupon  presents  the  draft  through  the  proper  channel  to  the  Liver- 
pool Beef  Co.  which  pays  the  draft,  or  "accepts"  it,  and  thus  the  London  Steel 
Company  obtains  its  money. 

The  double  shipment  of  money  is  thus  avoided  and  cost  and  risks  reduced  to  the 
minimum.  Of  course,  such  direct  dealing  does  not  generally  obtain,  but  through  the 
medium  of  banks  and  exchange  brokers  essentially  the  same  process  takes  place  in  all 
exchange  transactions,  debts  in  one  country  offsetting  credits  in  another,  so  that 
in  the  sum  total  money  is  used  only  to  adjust  the  differences  at  final  settlement. 
The  bill  of  exchange  becomes  an  acceptance  if-rhe  drawee  writes  across  the  face 
of  it:  "Accepted"  (date  made  and  date  payable). 

The  same  principles  apply  to  inland  bills  (bills  between  different  places  in  the 
same  country)  the  only  difference  being  in  the  money  units  involved. 

Whether  the  order  is  for  the  payment  of  funds  out  of  a  balance  in  the  hands 
of  a  banker  (banker's  check),  or  in  order  to  secure  payment  for  goods  as  soon  as 
shipped,  by  drawing  on  the  buyer  and  selling  to  a  bank  in  the  exchange  market, 
(trade  bill)  the  result  is  the  same — the  payment  of  a  debt  by  means  of  a  paper 
instrument  of  credit. 

PROMISSORY  NOTES 

'  Promissory  notes,  however,  perform  a  different  function,  and  are  not  drawn 
on  persons,  but  by  persons.  They  do  not  primarily  intend  to  transfer  funds,  but 
to  settle  debts  and  borrow  money.  They  need  not  necessarily  represent  a  business 
transaction,  but  many,  if  not  most  of  these  instrunients  arise  by  virtue  of  goods 
bought  and  sold. 


k 


COMMERCIAL    PAPER    AND     BILLS    OF     EXCHANGE 


—  1  — 

The  Boston  Beef  Co.  sells  to  the  Liver- 

pool  Beef  Co.  $10,000  worth  of  meat 

BOSTON 

Creditor  of  Liverpool 

—  5  — 

Boston  Beef  Co.  drav^'s  on  Liverpool 

Beef  Co.  and  sells  draft  to  New  York 

Razor  Co. 


Liverpool  Owes  Boston 


—  2  — 

Liverpool    Beef    Co.    buys    $10,000 

worth  of  meat  from  Boston  Beef  Co. 

LIVERPOOL 

Debtor    to    Boston 

—  8  — 

Liverpool  Beef  Co.  pays  draft  to  Lon- 
don Steel  Co. and  transaction  is  closed 


i^JxThitiiiu*  tuf 


QmmUliM '-  "° 


m 


^huiu^stm* 


^. 


^^ 


J 


S     '•:£■ 


///   '    ////  /  f 


f),. 


'/y^^' 


'  /'////^ 


Udms-JHmmmasklhh(§iim^ 


—  3  — 

New  York  Razor  Co.  buys  $  10.000 

worth  of  Steel  from  London  Steel  Co. 

NEW     YORK 

Debtor    to    London 

—  6— 

New  York  Razor  Co.  buys  draft  of 
Boston  Beef  Co.  and  endorses  "Pay 
to  London  Steel  Co.  New  York  Razor 
Co."  and  sends  draft  to  London  Steel 
Co.  for  Credit 


The  Draft 


New  York  Owes  London 


The  Draft 


—  4  — 

London    Steel   Co.    sells   New   York 

Razor  Co.  $  10,000   worth   of   Steel 

LONDON 

Creditor  of  New  York 

—  7  — 

London   Steel   Co.    presents   draft  to 

Liverpool  Beef  Co.,  receives  payment 

and  credits  New  York 


To  get  a  clearer  interpretation  of  the  transactions  shown  in  the  above  diagram,  read  the 
paragraphs  consecutively  as  numbered. 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


Another  form  of  credit  that  is  most  ussful 
to  the  general  public  is  the  Traveler's  Cheque. 
America  has  now  become  the  great  tourist 
nation,  which  the  American  Banker's  Associa- 
tion has  recognized  through  the  establishment 
of  its  Travelers'  Cheque  system.  This  form  of 
credit  is  an  authority  in  effect  to  whomever  it 
may  concern,  for  instance,  banker,  hotel  clerk, 
merchant  or  railroad  agent,  to  credit  the  party 


some  instances  approximating  one  hundred 
per  cent,  of  the  business  done,)  is  undoubtedly 
due  to  the  growing  number  of  banking  institu- 
tions, every  town  and  hamlet  now  having  its 
own  bank.  And  as  the  people  become  more 
and  more  accustomed  to  the  use  of  the  bank 
check — the  perfect  circulating  medium,  checks 
will  supplant  other  forms  of  currency,  so  that 
paper  money  will  only  be  used  to  a  limited 


SIGN  here  when  purchasing 
at  Bank 


COUNTERSIGN  here  in  the  presence 
of  person  called  on  to  accept  ch3qiie 


Here  write  name 
of  PAYEE 


^Q>i5CK  V^O 


BANKGRS  TRIJ  fer  COMPANY 


€ 


KWC4UHTU»ieMCD»CUWWrrRTHISGFfiJlAWKE  ATAirvTm 


WrfHIK  rwo  VtAWB  r»OM  DATE  TSjjrn 


N'.' 


Pay  to  the  order  of  .  r^At  VYv5i :  ^V  ^  vcvyyi  t-  ov  Ci-eviv  1. 1   j^ 


iglti 


(y- 


«« ""^■'*<3fr  *•*'  *^*«" 


BANKenS  TRUST  COMFAKY. 


i^T"^    8209? 

OR  ITS  tQUIVALf  HT 
AS  9CL0W 

NAME     OF     ISSUING      BANK 
WILL    BE     PRINTED     HERE 


VALUES  of  cheque  in  FOREIGN  MONEYS  plainly  show  how  many  pounds,  dollars,  marks. 

franks,  lire,  kroner,  et  ■  ,  ore  s'^^-'^'  receive 


Courtesy  of  the  Bankers  Trust  Company  o{  New  York 

Facsimile  of  American  Bankers'  Association  Travelers'  cheque  with  instructions  how  to  fill  in 


presenting  it,  when  he  identifies  himself  by 
means  of  his  countersignature,  with  cash  goods 
or  service.  It  has  placed  in  circulation  millions 
of  dollars  in  paper  that  is  safe  for  tourists  to 
carry  and  safe  for  those  called  upon  to  accept 
for  full  value.  The  system  marks  a  vital  and 
important  forward  step  in  banking  service. 

The  Use  of  Bank  Checks  in  the 
United  States 

The  use  of  bank  checks  is  as  highly  devel- 
oped in  the  United  States  as  could  be  hoped 
for;  even  England  where  the  bank  check  has 
supplanted  other  forms  of  circulating  media, 
could  hardly  make  a  better  showing.  There, 
money  is  used  only  in  the  small  exchanges, 
over-the-counter  buying  and  in  the  payment 
of  labor,  which  is  a  small  factor  in  the  gross 
turnover.  The  reason  for  the  widespread 
increased  use  of  checks  in   this  country   (in 


degree  and  gold  only  in  international  transac- 
tions. With  less  than  five  per  cent,  of  the 
bank  deposits  in  the  form  of  currency,  and 
only  I  per  cent,  in  coin,  it  would  seem  that 
the  check  had  at  last  come  to  be  the  currency 
of  the  country. 

The  statement  has  been  made  by  men  of 
authority,  that  qd  per  cent,  of  the  business 
of  the  country  is  done  without  the  use  of 
money.  The  statistics  forming  the  basis  of 
these  calculations  have  been  gathered  from 
time  to  time  by  the  Comptroller  of  the 
Currency,  the  inquiry  taking  the  form  of  as- 
certaining the  relative  proportion  of  checks 
and  other  credit  instruments  in  the  receipts 
of  the  banks  of  the  country  during  a  single 
day;  the  day  being  selected  as  fairly  represent- 
ative of  normal  conditions.  These  statistics 
show  ihat  about  92  per  cent,  of  the  deposits 
are  in  checks. 


The  Credit  System 

Chapter  II 


THE  credit  system  forms  the  perfect 
and  convenient  method  for  paying 
large  sums,  especially  in  distant  places. 
It  displaces  the  use  of  a  corresponding  amount- 
of  gold  and  silver,  thus  releasing  the  metals 
for  other  purposes;  hence,  credit  is  a  far  better 
medium  of  exchange  than  an  equal  amount  of 
coined  money;  for  while  money  is  an  indispen- 
sable denominator  of  prices,  and  the  medium  of 
the  smaller  exchanges,  credit  is  the  instru- 
ment of  the  larger  exchanges  and  larger  pro- 
duction. Indeed,  in  this  broader  field  of 
usefulness,  credit  performs  what  coin  can  not, 
except  through  the  credit  system  ard  its 
various  modes  of  adjustment  how  would  it 
be  possible  to  pay  over  $300,000,000  daily 
in  ten  minutes  at  the  New  York  Clearing 
House  ?  It  is  done  there  by  exchanging  and 
offsetting  items,  having  differences  to  be 
settled  later.  Moreover  as  an  instrument  it  is 
economically  costless  and  not  like  money  with 
a  commodity  value  and  therefore  expensive. 
Through  a  cooperative  credit  system  such  as 
obtains  in  Germany,  Austria  and  Italy, 
laborers  and  artisans  are  enabled  to  unite 
their  limited  credit,  and  make  it  effective  and 
cheap  by  reason  of  its  goodness;  for  collective 
credit  is  as  potent  a  force  as  collected  capital. 
And  wherever  the  credit  system  is  well  de- 
veloped, credit  is  not  only  stable  and  cheap, 
but  an  educational  force,  and  as  valuable  as 
a  national  asset,  as  is  climate  or  geographical 
location.  The  credit  system  is  most  effectively 
developed  in  those  nations  where  the  highest 
order  of  intelligence  prevail,  and  where  credit 
is  used  in  its  full  power  it  has  carried  through 
achievements  impossible  under  any  system 
of_barter  or  money  exchanges. 
/^In  the  credit  system  we  have,  first,  the 
\creation  of  the  obligation;  second,  the  transfer 
)of  the  instrument  arising  out  of  tlie  transaction ; 
third,  the  circulation  of  the  instrument; 
fourth,  its  payment  and  cancellation. 

""■  Personal  Credit 

Personal  credit  underlies  the  whole  credit 
system.  The  intrinsic  goodness  of  the  in- 
dividual credit  has  much  to  do  with  the  sound- 
ness of  the  entire  structure.  This  credit 
was  formerly  based  largely  upon  personal 
knowledge  of  the  borrower;  but  casual  obser- 
vation has  given  way  to  careful  inquiry  and 
systematic  records,  so  that  with  the  growth 


of  the  system,  more  definite  and  accurate 
information  is  now  obtained  as  to  the  bor- 
rower's condition,  habits  and  ability  and, 
only  as  credit  is  strong  at  the  base  can  the 
structure  reared  upon  it  be  sound. 

If  the  credit  given  by  the  storekeeper  is 
unwisely  extended,  extravagance  and  loose 
methods  encouraged,  collections  slow  and 
bad  debts  accumulated,  it  endangers  the 
whole  system;  for  when  the  retailer  cannot 
pay  the  wholesaler  the  latter  must  fall  back 
upon  the  bank,  and  the  load  of  unwise  credit 
assumed  by  the  individual  spreads  to  the 
whole  system,  undermining  its  usefulness  and 
power. 

Credit  too  freely  offered  is  an  economic 
crime.  The  credit  unions  of  Germany  have 
the  right  idea,  and  their  credit  system  is  the 
essence  of  strength,  because  loans  are  never 
made  but  for  productive  purposes.  The 
credit  must  not  only  be  desired  but  desirable, 
self -liquidating,  and  for  a  purpose  that  will 
create  and  not  destroy.  The  ultimate  strength 
of  any  system  of  credit  depends  not  only 
upon  the  willingness  of  the  borrower  to  pay, 
but  his  ability.  If  the  man  be  able  and  also 
willing  the  very  essential  elements  are  in 
evidence.  If  he  be  able  but  not  willing  the 
risk  is  bad;  and  if  willing  but  not  able,  loss  is 
certain. 

Credit  is  Capital 

Credit,  answering  the  same,  and  often  a 
better  purpose  than  money,  the  power  to 
command  credit  is  as  effective  as  the  power  to 
borrow  the  actual  money.  If  Smith  will 
trust  Jones,  either  on  book  account  or  on  note, 
or  by  accommodation  paper  or  endorsement 
it  is  as  beneficial  as  the  loan  of  the  actual  cash. 
A  loan  of  credit  does  not,  however,  always 
increase  the  supply  of  capital;  for  if  Smith 
loans  Jones  $10,000  by  means  of  his  note, 
the  proceeds  increases  the  capital  of  Jones, 
but  the  lender's  credit  is  reduced  accordingly. 

And  so  the  creation  of  credit  does  not 
always  increase  the  volume  of  capital,  but  its 
commercial  value  may  be  increased  by  mobil- 
izing the  capital  and  making  it  effective. 
Jones  may  have  use  for  the  capital  created  by 
capitalizing  Smith's  credit,  and  employ  it  so 
effectively  that  he  can  pay  Smith  for  its  use 
and  still  make  a  profit  for  himself.  Moreover 
the  idle  capital  in  the  hands  of  Smith  becomes 
effective  capital  in  the  hands  of  Jones. 


COMMERCIAL    PAPER    AND    BILLS    OF    EXCHANGE 


As  money  becomes  an  effective  instrument 
of  exchange,  not  only  by  reason  of  the  amount 
available,  but  by  the  frequency  of  the  turn- 
over, so  credit  becomes  an  effective  instru- 
ment by  the  frequency  of  its  circulation. 
Moreover  it  effects  prices  by  reason  of  its 
effective  turnover,  because  of  its  lessened  cost. 
It  can  readily  be  seen  that  if  one  hundred 
dollars  changes  hands  ten  times  a  day,  it 
does  the  work  of  a  thousand  dollars,  and  leaves 
the  nine  hundred  for  other  purposes.  And 
so  a  credit  instrument  may  settle  several 
debts  by  being  passed  from  one  to  the  other 
the  ultimate  redemption  in  gold  being  the 
only  safeguard  necessary  to  insure  stability. 
Only  when  fear  of  adequate  redemption 
facilities  creeps  in  to  unsettle  the  minds  of 
the  public  does  the  question  of  final  redemption 
become  a  disturbing  factor. 

Forms  of  Credit 

The  Credit  system  resolves  itself  into 
five  forms;  book  credit;  bank  note  credit, 
commercial  paper  credit,  check  credit,  and 
acceptance  credit.  The  form  which  credit 
takes  should  be  adapted  to  the  needs  of  the 
people  and  the  usages  of  business.  It  can 
readily  be  seen  that  any  form  of  credit  which 
locks  up  cash  is  more  expensive  than  that 
which  involves  no  cash.  \ 

The  book  credit  is  merely  a  record  of  the 
transactions — accounts  stated.  In  former  days 
this  answered  fairly  well,  when  goods  were 
sold  on  long  time,  and  quick  turnover  and 
cash  discounts  were  not  in  vogue.  The 
"accounts  receivable"  on  the  credit  state- 
ment is  merely  an  aggregation  of  the  book 
accounts.  This  form  of  credit  is  negotiable, 
some  firms  making  it  a  business  to  loan  on 
such  security,  and  some  banks  take  such 
accounts  as  security  for  cash  advances. 

The  check  form  of  credit  is  the  most  effective 
as  a  circulating  medium,  this  form  being  most 
effectively  developed  in  England  and  the 
United  States,  where  the  check  is  more  gener- 
ally used  than  in  any  other  part  of  the  world. 
The  check,  like  the  bill  of  exchange  quickly 
comes  home  for  payment;  but  the  check, 
being  in  non-uniform  denominations,  and 
with  credit  unknown  outside  its  immediate 
field,  is  not  as  perfect  a  form  of  credit  as  the 
bank  note,  which  if  issued  under  proper  safe- 
guards, answers  the  same  purpose  as  money. 

The  danger  lies  in  the  ratio  of  coin  to  bank 
notes.  If  the  volume  of  notes  is  large  and  the 
gold  backing  small,  a  sudden  demand  for 
payment  (redemption)  results  in  a  suspension 


of  specie  payment  unless  gold  can  be  attracted, 
or  some  other  form  of  credit  instrument 
created  that  will  meet  the  demands  of  the 
note  holders.  A  central  credit  agency,  is 
therefore,  needful,  which  can  turn  the  credit 
instruments  of  commerce  from  one  form  into 
another,  which,  until  the  creation  of  the 
Federal  Reserve  Association,  we  have  sadly 
lacked. 

'  TThe  check  and  the  bill  of  exchange  properly 
accepted,  form  the  perfect  medium  of  large 
payments,  as  the  bank  note  forms  the  perfect 
medium  of  the  small.  Quick  redemption, 
expansion  and  contraction  with  the  changing 
needs  of  business  make  the  former  ideal 
credit  instruments,  and  when  quickly  turnable 
into  the  bank  note,  a  bank  obligation  that 
will  pass  current  throughout  the  country, 
answer  all  the  purposes  of  metallic  money, 
and  as  a  medium  of  exchange  are  both 
economical  and  efficient. 

Credit  may  be  used  to  obtain  funds;  it 
may  be  used  as  funds.  In  the  mercantile 
world,  the  credit  of  the  merchant  in  whatever 
form  it  may  be  utilized,  is  used  to  obtain 
funds;  but  when  credit  takes  the  form  of 
bank  notes,  it  is  funds.  And  credit  when 
used  by  the  bank  in  making  acceptances, 
again  becomes  funds,  by  creating  a  circulating 
medium. 

Bills  of  exchange,  checks,  and  notes  cir- 
culate as  money  by  passing  from  hand  to  hand 
in  the  settlement  of  debts.  Thus,  a  farmer 
owing  his  storekeeper  for  a  bill  of  goods, 
tenders  his  sixty  day  note.  The  merchant 
passes  it  on  to  the  jobber  in  the  county  seat, 
who  gives  him  (the  merchant)  credit  for  the 
amount,  and  passes  it  over  to  his  bank  and 
himself  receives  credit  for  it  on  checking 
account;  or,  he  might  pass  the  item  on  to  the 
wholesaler  in  the  large  city,  who  in  turn  gives 
the  jobber  credit,  and  discounts  the  paper 
at  his  bank.  Under  the  Federal  Reserve 
Association  plan,  the  discounting  bank  may 
in  turn  rediscount  the  paper  at  the  Federal 
Bank  and  receive  bank  notes  for  it,  so  that 
ultimately  the  paper  will  pass  into  the  cir- 
culating medium  of  the  country.  If  each 
transfer  represents  a  commercial  transaction — 
a  sale  of  goods — there  is  no  element  of  un- 
soundness in  the  process;  but  if  fictitious 
undertakings  and  speculative  enterprises  are 
thus  financed,  accommodation  loans  made, 
there  is  danger  in  the  process  to  be  carefully 
guarded  against,  moreover  such  paper  is  not 
eligible  for  rediscount  in  the  Federal  Reserve 
Banks.j 


Banks  and  The  Credit  System 

Chapter  III 


THE  function  of  the  bank  is  to  gather 
the  idle  capital,  and  through  its  mob- 
ilizing power  employ  it  effectively. 
Money  in  bulk  is  always  a  powerful  force 
in  the  credit  system.  Banks  become  effective 
parts  of  the  credit  system  in  proportion  to 
their  aggregated  money  accumulations  and 
standing  in  the  credit  world;  and  their  ability 
to  lend  their  credit  is  based  upon  such  holdings 
and  augmented  by  their  reputation  and  known 
conservatism.  The  essentials  of  a  credit 
transaction  are  exchange  and  time.  Credit 
does  not  appear  in  all  exchange  transactions, 
but  exchange  appears  in  all  credit  transactions, 
and  out  of  such,  perfect  credit  instruments 
arise. 

Banking  credit  bridges  over  the  period 
between  raw  material  and  the  finished  product. 
The  manufacturer  buys  raw  material  on 
condition  that  he  be  allowed  time  to  turn  it 
into  the  manufactured  article.  He  buys  the 
material  on  credit  and  liquidates  the  debt 
by  turning  the  manufactured  article  into 
money.  But  the  seller  may  want  his  money 
long  before  it  can  be  manufactured  into 
finished  goods,  and  so  the  bank  intervenes, 
buys  the  credit  on  the  manufacturer,  and 
pays  the  seller  at  once.  The  bank  is  the 
perfect  instrument  for  doing  this  because  it 
has  accumulated  capital  for  just  such  puiposes. 

Banking  Credit  is  Capital 

Some  economists  claim  that  credit  thus 
used  is  never  capital,  and  can  only  be  used  to 
facilitate  the  process  which  terminates  in  the 
creation  of  capital,  and  increases  its  efficiency. 
Be  this  as  it  may,  the  use  of  bank  credit 
assuredly  augments  and  increases  the  efficiency 
of  private  capital.  Thus  a  manufacturer  with 
$50,000  capital  makes  10  per  cent.,  or  $5,000 
a  year.  Supposing  he  has  $10,000  of  his  own 
capital  and  borrows  $40,000  of  a  bank  at 
5  per  cent.,  $2,000,  and  still  makes  the  $5,000 
gross,  he  would  have  $3,000  profit  left,  or 
thirty  per  cent,  on  his  capital  instead  of  ten. 

The    Function    of    Banking    is    to 
Lend  Credit 

nrhe  function  of  banking  is  to  gather  capital 
and  lend  credit.  While  in  one  form,  banks 
may  be  said  to  create  credit  by  issuing  bank 
notes,  their  function  is  more  particularly  to 
certifv  to  credit.    And  after  the  examination 


and  certification  of  credit  by  the  bank,  credit 
unknown,  but  good,  becomes  a  circulating 
credit  and  therefore  the  most  effective  form 
of  credit.  The  discount  system  of  Europe 
has  most  effectively  developed  this  latter 
phase  of  banking  in  the  certification  of  credit 
through  acceptances. 
:  tJnder  the  National  Bank  Act,  a  national 
bank  was  not  allowed  to  lend  on  credit  without ' 
setting  aside  a  certain  amount  of  cash,  and 
it  could  not  lend  its  credit.  In  the  certifica- 
tion of  checks,  cash  has  already  been  set  aside. 
They  do  not  therefore  lend  their  credit  in 
this  instance,  or  create  new  credit,  but  certify 
to  the  maker's  credit  and  assume  his  obligation 
making  it  of  such  quality  as  to  circulate 
more  freely.  But  it  involves  cash.  And 
whatever  progress  has  been  made  by  the 
American  people  towards  a  more  scientific 
use  of  credit  has  been  through  a  painfully 
slow  process  and  in  spite  of  inadequate  laws 
and  unscientific  banking  methods. 

The  average  American  bank  simply  collects 
the  idle  funds  of  the  community  and  lends 
against  them.  It  lends  capital  rather  than 
credit,  and  only  in  such  places  as  New  York 
has  the  certified  check  become  an  important 
credit  instrument. 

Banks  by  virtue  of  their  power  to  mobilize 
cash,  may  most  efficiently  exercise  credit 
functions,  and  become  the  transferors  and 
extinguishers  of  trade  indebtedness;  and  a 
greater  service  could  not  be  rendered  society 
than  this.  The  operation  of  setting  debt 
against  debt  is  best  illustrated  in  the  opera- 
tions of  the  Clearing  House. 

Bank   Credit   Should   Be   Self- 
Liquidating 

.  ^The  quality  of  credit  created  by  banks  is 
tested  by  self-liquidation.  A  secured  loan 
may  have  ample  value  back  of  it,  but  as  a 
risk  it  is  not  nearly  as  sound  as  one  which 
represents  an  exchange  of  values.  In  both 
England  and  Germany,  collateral  loans  are 
quoted  at  higher  rates  than  loans  for  purely 
commercial  purposes.  In  panicky  times  com- 
mercial paper  has  proven  itself  a  more  liquid 
asset  than  the  be'st  of  stock  exchange  loans. 
The  trade  loan  will  redeem  itself  by  the  proc- 
ess of  consumption;  while  the  stock  exchange 
loan  only  redeems  itself  by  sacrifice.  The 
contrast  between  European  and  former  Ameri- 


10 


COMMERCIAL    PAPER    AND     BILLS    OF     EXCHANGE 


can  methods  is  the  difiference  between  the 
lending  of  money  and  the  lending  of  credit. 
The  distinction  lies  in  the  evidence  of  debt 
behind  the  loan.  The  bulk  of  the  assets  of 
the  great  banks  of  Europe  are  in  bills  of 
exchange  and  acceptances.  Heretofore  most 
of  the  assets  of  New  York  banks  were  on  call 
loans,  a  distinctly  commercial  bank  being  so 
rare  that  it  was  made  a  feature  in  the  ad- 
vertising. Prior  to  the  inauguration  of  the 
Federal  Reserve  System  the  commercial  paper 
held  by  the  banks  of  this  country  was  re- 
garded in  the  light  of  a  secondary  reserve; 
but  in  Europe  it  has  always  been  regarded  as 
a  primary  reserve,  no  distinction  being  made 
between  cash  and  bills  maturing,  since  the 
latter  can  be  turned  into  cash  at  once  by 
rediscounting  with  the  central  bank/ 

Lending  and  Borrowing  on  the 
Same  Terms 

'The  bank  should  not  grant  credit  upon 
terms  other  than  those  upon  which  its  credits 
are  granted.  If  its  debts  are  payable  on 
demand,  its  credits  must  likewise  be  payable 
on  demand,  or  by  the  operation  of  some  out- 
side agency,  be  turnable  into  cash  upon 
demand,  which  amounts  to  the  same  thing. 
The  discounting  to  a  central  institution,  which 
uses  these  obligations  as  the  basis  of  note 
issues  is  the  perfect  method  by  which  a  bank 
can  employ  its  funds  to  the  fullest  extent, 
and  yet  have  its  assets  always  ready  to 
respond  to  the  demands  of  its  creditors. 

The  European  banks  long  ago  recognized 
this  principle  and  adapted  themselves  to  it; 
while  American  banks  have  always  heretofore 
been  obliged  to  invest  deposits  payable  on 
demand  in  bonds,  both  short  and  long  time, 
paper  of  customers  which  they  are  in  duty 
bound  to  renew  and  commercial  paper  of 
stated  maturity  with  no  means  of  rediscount 
at  hand;  thereby  investing  a  call  obligation 
in  a  time  security.  (The  Federal  Reserve 
system  provides  a  remedy  for  this.) 

To  offset  this  weakness,  the  law  required 
them  to  carry  a  large  reserve — an  obligatory 
reserve,  (while  in  Europe  a  reserve  was 
optional) — so  that  upon  demand,  at  least  a 
part  of  the  calls  could  be  met.  But  this,  at 
critical  times  proved  utterly  inadequate,  as 
it  did  in  1907.  , 

Liquid  Assets 

-  Liquidity  of  assets  can  only  be  obtained  by 
so  arranging  the  maturities  of  loans  that  there 
is  a  constant  turnover.  'Without  a  central 
discount  market  such  as  we  have  lacked,  but 


which  promises  now  to  develop,  the  American 
banks  have  depended  upon  the  following  to 
keep  their  funds  in  liquid  form:  (a)  Cash  in 
bank  and  on  deposit  subject  to  call;  (b)  call 
loans  on  stock  exchange  securities;  (c)  a 
constant  stream  of  commercial  paper  under 
which  they  are  under  no  obligation  to  renew; 
(d)  short  term  bonds  with  well  selected 
maturities,  and  a  broad  market;  (e)  high 
grade  bonds  listed  on  the  stock  exchanges; 
(f)  other  bonds;    (g)  customers  notes. 

In  Europe  the  call  loan  is  not  regarded 
even  as  a  secondary  reserve,  commercial 
paper  maturing  from  day  to  day,  forms  the 
perfect  reserve,  in  that  it  not  only  matures 
and  will  be  paid,  but  short  term  paper  can  be 
turned  into  money  at  will  by  rediscounting 
at  the  central  bank.  The  central  bank  must 
hold  gold  enough  to  protect  the  notes  issued 
against  commercial  paper,  but  the  duty  of 
turning  liquid  assets  into  circulating  credits 
is  the  function  and  the  principal  function  of 
the  central  bank.  The  cash  holdings  of  banks, 
which  is  expensive,  can  thus  be  turned  into 
interest  bearing  credits,  and  these,  when 
needed,  into  money.  There  must  be  cash 
enough  to  meet  the  demands,  and  the  belief 
that  money  can  always  be  had  for  the  asking 
is  the  safeguard  of  the  business  world.  By 
this  process  an  interest  bearing  credit  becomes 
a  circulating  credit. 

The  Banker  a  Dealer  in  Credit 

The  banker  is  primarily  a  dealer  in  credit, 
and  it  is  to  him  the  public  looks  to  keep  the 
credit  machine  in  good  order.  While  he 
suffers  in  common  with  mercantile  interest 
when  the  credit  system  is  disturbed,  the 
burden  falls  most  heavily  upon  the  business 
community.  The  banker  always  has  his 
redress  upon  the  borrower,  but  when  his 
banker  fails  him  the  borrower  has  nowhere 
else  to  go  but  to  the  bankruptcy  court.  And 
for  the  sake  of  the  public  weal,  the  banker 
should  at  all  times  be  in  a  solvent  condition, 
by  keeping  the  credit  structure  over  which  he 
presides,  sound. 

The  volume  of  credit  and  its  intrinsic  worth 
is  regulated  by  the  banker,  and  as  a  governor 
of  credit  he  can  control  both  the  quantity 
and  the  quality.  A  large  volume  of  credit 
at  too  cheap  a  price  results  in  speculation, 
and  the  banking  system  that  does  not  properly 
control  the  flow  of  credit  is  faulty  at  its  basic 
point. 

The  distinction  between  sound  and  un- 
sound banking  depends  upon  whether  the 
commercial  paper  that  comes  into  existence 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


is  the  result  of  genuine  trade,  or  is  merely 
fictitious.  If  it  is  merely  to  borrow  money 
it  may  not  be  unsafe,  but  is  a  species  of  fiat 
paper  that  has  no  true  value  as  an  instrument 
of  credit.  Paper  should  liquidate  itself;  and 
borrowing  money  gives  birth  to  no  self-liqui- 
dating instruments. 

While  a  single  commodity  may  be  the  ulti- 
mate basis  of  several  instruments  of  credit, 
the  several  transfers  may  be  complete  in 
themselves.  Thus,  if  A  sells  goods  to  B  and 
takes  his  note  for  six  months;  B  sells  the 
goods  to  C  taking  a  four  months  note;  C, 
in  turn  sells  to  D,  taking  a  two  months  note, 
there  will  be  three  credit  instruments  out 
against  the  same  commodity,  but  each  will 
represent  a  distinct  bargain  and  sale,  and 
each  meeting  his  obligation  to  the  other  will 
liquidate  all. 

Banks  as  Clearing  Houses  of  Credit 

The  particular  function  of  banking  in 
connection  with  commercial  paper  is  to 
collect  the  various  obligations  and  "clear" 
the  transactions  as  the  clearing  house  clears 
checks.  Debtors  and  creditors  are  constantly 
trying  to  get  together  and  write  off  their 
debts  against  each  other. 

The   Bulk  of  Bank  Deposits   Book 
Credits 

The   bank    deposit    is    a   more    dangerous 


instrument  of  inflation  than  bank  notes. 
There  is  a  limit  to  the  amount  of  notes  the 
people  will  take  and  use,  but  no  limit  to  the 
bank  deposits  that  may  be  created  by  the 
operation  of  credit. 

The  bulk  of  the  bank  deposits  are  merely 
book  credits.  When  a  man  borrows  $5,000 
on  his  note  and  has  the  same  credited  to  his 
account,  the  liabilities  are  swelled  by  the 
same  amount  and  so  are  the  assets.  The 
borrower  checks  out  the  credit  thus  created, 
and  these  checks  are  deposited  in  other  banks 
and  again  go  to  swell  the  deposits.  By  making 
the  loan  the  bank  has  added  $5,000  to  the 
buying  power  of  the  community,  and  the 
buying  power  thus  created  is  existent  while 
the  loan  remains  in  force.  This  is  the  cause 
of  inflation.  The  danger  lies  in  the  too  free 
use  of  this  credit  in  prosperous  times,  so  that 
when  depositors  lose  confidence  a  sudden 
demand  for  cash  finds  the  banks  unable  to 
meet  the  call.  Canada  can  create  bank  notes 
as  needed  and  retire  them  when  not  wanted, 
and  use  the  check  book  as  freely  as  we,  and 
as  a  result  never  has  a  currency  panic  or  a 
suspension  of  specie  payments;  while  we, 
heretofore,  have  met  a  sudden  demand  for 
cash  by  curtailing  credit,  selling  securities 
and  calling  loans — all  because  the  book 
credits  were  payable  on  demand  and  the  basis 
of  the  credit  impossible  to  turn  into  money 
until  maturity,  and  sometimes  not  then. 


Commercial  Paper  in  The  United  States 

Chapter  IV 


COMMERCIAL  paper,  in  its  broad  sig- 
nificance, includes  all  forms  of  instru- 
ments that  arise  from  the  operations  of 
commerce.  As  commonly  understood  in  bank- 
ing and  financial  circles,  however,  the  term  has 
been  narrowed  to  have  particular  reference  to 
notes  sold  to  banks  through  commercial  paper 
brokers.  It  is  sometimes  designated  as  "pur- 
chased paper,"  as  contradistinguished  from 
discounted  paper  of  the  bank's  own  customers. 

As  a  bank  investment  it  has  become  very 
popular,  it  having  been  authoritatively  stated 
that  over  $1,700,000,000  of  such  paper  has 
been  sold  in  a  single  year  by  brokers  to  banks 
throughout  the  country,  representing  the 
obligations  of  upwards  of  3,000  business 
concerns. 

The  reasons  for  borrowing  through  this 
channel  are  two:  First  to  take  advantage 
of  the  broad  market,  and  secondly  to  obtain 


the  lower  rates  that  the  broad  market  affords. 
This  is  not  to  say  that  home  banking  facilities 
are  not  availed  of,  but  in  small  places  the 
rates  are  usually  higher  than  in  money  centers, 
and  it  is  a  recognized  principle  of  borrowing 
in  this  country,  that  the  home  banking  con- 
nections shall  not  be  overstrained,  so  that 
there  will  always  be  an  "anchor  to  the  wind- 
ward" in  the  event  that  open  market  borrow- 
ing becomes  difficult. 

"^'The  chief  merit  of  commercial  paper  as  an 
investment  lies  in  the  fact  that  it  comes  in 
large  denominations;  is  of  short  maturity,  and 
does  not  fluctuate  like  stocks  and  bonds.  It 
is  worth  par  at  all  times.  The  commercial 
paper  now  in  existence  in  the  American 
market  consists  of  (a)  Promissory  notes 
signed  by  a  firm,  individual,  or  corporation 
issuing  the  same  promising  to  pay  a  specified 
amount  to  a  certain  party  at  a  certain  time; 


12 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


(b)  bills  of  exchange,  usually  accompanied  by- 
documents;  (c)  collateral  loans,  usually  on 
collateral  note  protected  by  warehouse  re- 
ceipts, trust  receipts,  stocks,  bonds,  etc.;  by 
which  specific  property  is  pledged  as  security; 
(d)  notes  protected  by  mortgage  security, 
either  real  or  chattel. 

Forms  of  Paper 

Commercial  paper  in  the  sense  used  today 
by  banks  and  bankers  consists  of  first,  promis- 
sory notes  made  in  uniform  denominations, 
usually  running  from  three  to  four  months, 
and  as  a  rule  sold  through  note  brokers,  the 
proceeds  of  which  are  used  to  take  advantage 
of  trade  discounts. 

The  second  form  of  commercial  paper  ig 
known  as  "receivables."  In  the  nomen- 
clature of  the  trade,  a  "receivable"  is  a  note 
given  by  the  buyer  to  the  seller  in  payment' 
of  a  bill.  The  note  is  endorsed  by  the  payee 
and  sold  through  brokers  or  to  a  bank  direct, 
and  constitutes  "two-name  paper."  Of  such 
character  is  the  note  of  the  retail  merchant 
given  to  the  jobber  which  when  endorsed  and 
sold  becomes  a  receivable.  It  is  prima  facie 
evidence  of  a  business  transaction,  and  needs 
no  other  corroborative  proof  of  its  genuine 
character.  The  advantage  is  that  the  trans- 
action is  closed  at  once,  and  the  business  of 
financing  the  matter  falls  on  the  banks  and 
not  upon  the  business  house. 

Endorsed  Paper 

"Endorsed  paper"  differs  from  receivables 
in  that  the  endorsement  is  added  either  for 
the  express  purpose  of  giving  strength  to  the 
note,  or  to  insure  moral  backing.  Thus  the 
endorsement  of  an  individual  on  the  note  of 
a  corporation  is  evidence  of  the  faith  in  the 
maker  and  adds  personal  to  corporate  liability. 

Present  Custom  a  Growth 

"i'The  present  custom  of  issuing  commercial 
paper  is  the  out-growth  of  a  process  of  evolu- 
tion. Trade  bills — notes  given  by  merchants 
in  the  settlement  of  debts,  were  formerly  in 
common  use.  With  the  introduction  and 
expansion  of  the  cash  discount,  single  name 
paper  began  to  grow  in  favor,  so  that  at  the 
present  time,  this  form  of  paper  predominates 
in  the  American  market,  it  being  estimated 
by  commercial  paper  brokers  who  are  well 
informed,  that  fully  90%  of  the  paper  is  single 
name.  With  the  advent  of  the  credit  depart- 
ment in  banks,  and  the  highly  organized  credit 
departments  of  paper  brokers,  commercial 
paper  has  largely  supplanted  bond  investments.' 


The  methods  of  certain  trades  are  so  firmly 
established  that  any  sudden  change  in  the 
credit  operations  would  work  revolution  in 
the  business  which  would,  no  doubt,  be  danger- 
ous if  not  disastrous.  For  instance,  in  some 
lines,  like  textiles,  the  dating  ahead  of  all 
sales,  the  book  account  form  of  credit,  the 
assigning  of  accounts  to  a  factor,  is  so  char- 
acteristic of  the  trade  that  to  insist  upon 
promissory  notes  would  be  almost  impossible. 
The  business  is  built  up  around  the  custom, 
and  financial  arrangements  have  been  made 
accordingly.  The  trade  discounts  in  some 
lines  are  so  liberal  that  to  neglect  to  take 
advantage  of  them  is  costly  both  in  money 
and  credit.  For  instance  in  tea  the  discount 
is  9%,  and  coffee  S%  for  cash,  ten  days.  In 
order  to  obtain  the  cash  for  such  discount 
operations,  the  paper  of  the  merchant  is  sold 
in  the  open  market  through  brokers,  and  all 
bills  discounted. 

It  is  not  customary  to  have  two  kinds  of 
paper  out,  i.  e.,  single  name  paper  of  the  mer- 
chant, and  his  receivables.  If  a  firm  were  to 
borrow  on  its  open  credit  on  single  name  paper, 
and  then  sell  its  bills  receivable,  it  would 
weaken  its  financial  standing  and  its  financial 
condition,  since  it  had  parted  with  its  choicest 
and  quickest  asset,  and  have  a  primary  and 
secondary  obligation  outstanding  at  the  same 
time. 

Commercial  Paper  and  Note  Issues 

It  is  a  principle  of  sound  banking  that  no 
advance  oi  bank  credit  should  be  made  except 
to  facilitate  exchanges— to  anticipate  a  de- 
ferred payment.  The  payment  of  the  mer- 
cantile debt  should  cancel  the  bank  debt, 
so  that  the  term  of  the  latter  should  be  short, 
not  longer  than  the  time  needed  to  turn  the 
material  into  money.  Loans  for  any  other 
purpose  are  not  of  the  sort  that  expedite 
business.  Loans  for  carrying  securities  or  for 
speculation  of  any  sort  are  not  of  prime  quality, 
as  viewed  from  the  liquidation  standpoint, 
since  the  security  must  be  sold  in  order  to 
cancel  the  debt;  while  in  commodity  loans 
the  security  must  be  consumed. 

It  is  clearly  the  intent  of  the  Federal 
Reserve  Law  that  the  note  issues  should  be 
based  upon  paper  arising  out  of  mercantile 
transactions  and  the  Federal  Reserve  Board 
has  decided  to  place  this  restriction  upon  all 
paper  that  is  accepted  for  rediscount. 

Single  Name  Paper 

"fThe  use  of  single  name  paper  dates  from 
the  Civil  War.    Prior  to  that  time,  "trade 


13 


COMMERCIAL    PAPER    AND     BILLS    OF     EXCHANGE 


paper" — merchandise  notes,  was  the  custom; 
but  the  Greenback  troubles,  and  the  uncer- 
tainty of  the  value  of  a  credit  instrument 
running  over  a  long  period,  brought  about  a 
change  of  method  and  sellers  generally  desired 
cash  and  made  concessions  for  prompt  pay- 
ment. The  period  of  credit  was  shortened 
(before  the  war,  credit  running  as  long  as 
six  months,  or  longer,  was  not  uncommon) 
and  due  concessions  were  made  for  quick 
settlement.  The  inducements  to  pay  cash 
were  so  great  that  the  merchant  could  not 
afford  to  neglect  them,  and  failure  to  do  so 
was  to  invite  criticism  of  his  standing. 

In  order  to  obtain  funds  to  make  such 
payments,  merchants  sold  their  single  name 
notes  through  brokers  (first  on  commission 
and  then  gradually  the  brokers  became  pur- 
chasers, depending  upon  their  ability  to 
promptly  place  their  purchases  and  thus  avoid 
loss)  and  with  the  proceeds  pay  cash  for  all 
purchases. 

The  market  for  single  name  borrowing  has 
been  largely  restricted  to  firms  with  large 
capital  and  well  known  credit,  some  brokers 
refusing  to  handle  paper  of  concerns  of  less 
than  half  a  million  assets;  but  as  the  benefits 
become  known  this  form  of  borrowing  spread 
to  small  and  sometimes  weak  concerns.  The 
merchant  or  manufacturer  who  receives  a 
note  in  payment  for  his  goods,  holds  the  same 
in  his  portfolio,  and  issues  his  own  paper. 
This  eliminates  the  circulation  at  the  same 
time  of  two  kinds  of  paper  with  the  same 
names,  the  single  and  the  double — the  pri- 
mary and  secondary  liability. 

The    Advantages    of    Single    Name 
Paper 

The  disadvantage  of  the  acceptance  form 
as  against  the  practice  of  borrowing  in  the 
open  market  on  single  name  paper  and  taking 
the  cash  discount  is  the  simplicity  of  the  single 
name  transaction.  Thus  a  merchant  sells 
twenty  notes  for  $5,000  each,  and  probably 
pays  several  hundred  bills  with  the  proceeds. 
Under  the  acceptance  or  two  name  form  he 
would  put  into  circulation  as  many  credit 
instruments  as  he  had  payments  to  make  which 
would  congest  the  bankers'  portfolios,  neces- 
sitate additional  bookkeeping,  and  add  to  the 
cost  in  the  collection  departments.  Of  course, 
the  seller  of  the  notes  draws  as  many  checks 
as  there  are  bills  to  pay,  but  these  are  quickly 
redeemed  and  pass  out  of  existence  and  do  not 
require  the  same  bookkeeping  detail  as  do 
notes.  At  the  hearing  before  the  Merchants 
Association  in  New  York,  in  March,  191 4,  it 

/ 


was  the  opinion  of  most  of  the  members  present 
that  it  would  be  impossible  for  them  to  obtain 
notes  from  their  customers,  and  in  order  to 
carry  them  on  open  account  it  would  be  neces- 
sary to  continue  single  name  paper. 

One  of  the  criticisms  against  single  name 
paper  is  that  it  is  to  the  broker's  interest 
to  keep  as  much  of  this  paper  out  as  possible ; 
often  when  the  needs  of  the  borrower  could 
be  met  by  the  home  banks.  At  maturity 
other  notes  are  issued  to  take  up  the  maturing 
ones  and  the  result  is  a  constant  stream  of 
notes,  in  some  instances  representing  fixed 
investments. 

It  sometimes  happens  that  more  than  one 
broker  is  employed,  which  of  course  results 
in  inflation,  since  there  is  no  check  on  the        > 
amount  outstanding.  > 

Two  Name  Paper 

While  single  name  paper  may  be  based  on 
an  account  receivable,  two  name  paper  is 
the  embodiment  of  an  account  receivable. 

The  depreciation  of  bonds,  and  the  diffi- 
culty in  selling  under  panicky  conditions  has 
brought  about  a  substitution  of  commercial 
paper  for  bonds  as  a  short  time  investment, 
which  has  led  to  keen  competition  by  brokers 
for  business,  and  as  in  all  other  lines  weaknesses 
have  crept  in  as  competition  has  developed. 

To  issue  two  name  paper  requires  two 
concerns  that  are  well  enough  versed  in 
business  practices  to  make  a  note  on  one  hand 
and  to  have  it  turned  into  cash  on  the  other. 

Two  name  paper  not  only  has  the  added 
protection  of  an  extra  name,  but  the  added 
safeguard  of  a  formal  acknowledgment  of  the 
amount  due  and  the  existence  of  the  debt. 
It  is  obvious  that  with  the  cost  of  the  trade  dis- 
count system,  from  12  per  cent,  yearly  and 
upwards,  that  two  name  paper  has  a  decided 
advantage  in  the  lessened  cost.  If  this  charge 
were  not  placed  on  the  business  world,  goods 
could  be  sold  for  the  manufacturing  cost  plus 
a  profit,  and  the  debt  settled  by  note,  the 
discount  of  which  could  not  exceed  the  legal 
rate,  the  cost  of  credit  would  be  considerably 
lessened. 

Whatever  the  merit  of  single  name  paper, 
two  name  paper  would  be  more  acceptable 
in  other  countries,  first  because  they  are 
accustomed  to  such  paper,  and  secondly  it 
carries  its  insignia  with  it. 

There  is  this  to  be  said,  however,  against 
two  name  paper,  the  endorsement  of  a  "re-     fv 
ceivable"  and  its  sale  introduces  a  contingent        \ 
liability,  which  while  remote,  may  be  worth 
considering.     Single  name  paper  is  a  direct. 


14 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


primary  obligation.  The  book  account  is 
closed  by  cash  and  the  debt  is  to  the  bank. 
With  two  name  paper,  the  debt  account,  while 
settled,  still  exists  in  another  but  contingent 
form. 

On  the  other  hand  there  are  two  very 
obvious  advantages  in  the  double  name  paper: 

(a)  The  self-evidence  of  a  business  transaction, 
Being  given  by  the  buyer  to  the  seller  to  liqui- 
date a  trade  transaction,  and  in  an  odd  denomi- 
nation, it  is  prima  facie  a  trade  instrument. 

(b)  It  has  the  double  liability  of  the  two  names. 
While  in  some  instances  two  names  may  not 
be  any  better  than  one  good  one,  nevertheless 
it  is  recognized  abroad  that  two  names  are 
generally  stronger  than  one.  No  further  proof 
than  the  paper  itself  is  needed  that  it  is  a  bona 
fide  instrument  arising  out  of  business  trans- 
action, while  in  the  single  name  instrument 
additional  proof  or  statement  might  be  neces- 
sary to  prove  it  had  been  given  for  the  purpose 
contemplated  by  the  Federal  Reserve  Act. ' 

The    Commercial    Paper    Dealer 

'The  commercial  paper  dealer  has  of  recent 
years  become  a  most  important  factor  in  the 
banking  business  of  the  country,  inasmuch  as 
he  has  been  the  go-between  between  the  bank 
having  funds  to  invest  and  the  borrower 
needing  accommodation.  He  is  a  most  vital 
part  of  the  money  market  machinery. 

In  the  first  place  he  covers  the  country, 
both  in  buying  and  selling  paper,  and  knows 
the  field.  He  knows  the  needs  and  preferences 
of  the  banks  and  the  conditions  of  the  borrow- 
ers. He  has  a  credit  organization  that  gives 
him  an  accurate  check  upon  the  paper  offered 
and  a  reputation  to  sustain.  His  offerings 
are  synonymous  with  quality.  He  works  on 
a  small  margin,  and  must  sell  large  quantities 
to  make  any  great  profit. 

In  the  second  place  the  dealer  knows  his 
customer.  He  investigates  his  credit  risk 
with  much  care  before  contracting  to  handle 
his  paper,  and  this  relation  once  established, 
is  lasting.  The  borrower  knows  that  he  will 
be  taken  care  of  and  the  broker  knows  he  will 
have  a  steady  supply  of  paper  to  offer,  and 
need  not  go  to  the  expense  of  a  new  investiga- 
tion at  every  issue. 

Having  determined  the  fact  that  the  paper 
is  desirable  to  offer,  great  care  is  used  to  know 
that  it  is  genuine.  Copies  of  the  by-laws,  if  a 
corporation,  are  filed,  showing  the  process 
required  in  borrowing.  The  authorized  signa- 
tures are  filed,  and  all  due  precaution  used  to 
insure  that  the  paper  is  authoritatively  signed, 
and  when  so  issued  becomes  the  binding  obli- 


gation of  the  issuer;  for  by  the  law  of  forgery 
it  would  be  no  obligation  if  unauthorized. 

The  question  arises  as  to  how  far  the  dealer 
is  liable  for  unlawfully  issued  paper.  Most 
houses  specifically  guarantee  that  the  paper 
is  genuine;  some  make  no  guaranty,  but 
agree  that  the  dealer  would  be  responsible 
for  any  irregularities.  The  fact  that  the 
paper  is  sold  by  a  house  of  standing  is  suflS- 
cient  to  warrant  its  quality. 

Most  of  the  leading  houses  pay  the  borrower 
upon  receipt  of  the  paper  in  cash  less  the 
commission.  Some  of  these  are  large  enough 
to  borrow  of  the  banks,  sums  running  into 
the  millions  on  their  single  name  paper,  and 
do  not  hypothecate  the  paper  bought;  while 
others  less  strong  pledge  the  paper  as  collateral. 

The  paper  is  then  offered  through  the  mails 
and  traveling  representatives  to  the  banks, 
and  purchased  by  them,  sometimes  under 
option  extending  from  a  week  to  ten  days  or 
to  the  next  board  meeting.  Some  houses  do 
not  extend  options  any  more,  but  sell  outright. 
None  of  the  dealers  endorse  the  paper.  Credit 
statements  are  furnished  if  desired  together 
with  full  information  as  to  the  borrower's 
condition. 

As  an  intermediary  the  dealer  has  been  able 
to  extend  the  borrower's  field  of  operations 
throughout  the  country.  And  contra  to  bring 
to  the  banks  in  all  parts  of  the  country  the 
very  best  paper  the  country  produces. 

The  turnover  of  commercial  paper  must  be 
enormous.  The  total  loans  of  25,993  banks 
in  the  United  States  on  June  4,  191 3  was 
$3,547,695,105.  Assuming  that  one-third  rep- 
resents paper  bought  in  the  open  market,  and 
that  the  average  time  is  four  to  six  months, 
giving  a  turnover  of  two  to  three  times  yearly, 
would  make  the  total  handled  in  the  course  of  a 
year  about  $2,300,000,000.  There  are  several 
firms  now  handling  over  one  hundred  millions 
yearly. 

In  selling  paper,  dealers  give  upon  request 
not  only  a  digest  of  the  statement,  but  also 
list  of  houses  from  whom  trade  references  may 
be  obtained  and  also  banks  which  have  handled 
the  paper  before. 

The  nearest  approach  to  a  discount  market 
in  this  country  at  the  present  time  is  the 
market  created  by  these  paper  dealers,  who 
know  where  the  demand  exists  and  where  the 
supply  is  to  come  from.f 

«        Principles  of  Borrowing 

It  is  a  recognized  principle  of  borrowing, 
that  loans  for  permanent  improvement,  such 
as  the  acquisition  of  land,  machinery,  build- 


15 


COMMERCIAL    PAPER    AND     BILLS    OF     EXCHANGE 


ings,  and  other  fixed  assets,  should  be  in  the 
form  of  stocks  and  bonds,  the  latter  with 
mortgage  security;  while  for  current  purposes, 
— for  liquid  capital  to  handle  the  turnover 
of  the  business,  another  form  of  borrowing, 
which  may  be  termed  liquid  borrowing  is 
proper.  That  is  to  say,  the  loan  should 
liquidate  itself — pay  itself  off,  by  the  auto- 
matic turning  into  money  of  the  commodities 
represented  by  the  loan;  for  every  loan  of 
this  character  should  be  for  the  purpose  of 
financing  a  business  operation.  And  when 
the  purpose  of  the  loan  is  completed,  the 
instrument  that  arose  at  the  inception  of  the 
trade  should  disappear  and  another  take  its 
place. 

If  $100,000  of  single  name  paper  is  put  out 
for  the  purpose  of  taking  the  trade  discounts, 
when  the  goods  are  sold  to  the  next  in  line, 
and  payment  made  therefor,  the  single  name 
paper  should  go  out  of  existence.  And  another 
set  of  instruments  come  into  being  to  finance 
another  transaction. 

A  stock  of  canned  goods  would  be  consumed 
in  the  course  of  a  year  at  the  most;  and  to 
issue  bonds  for  such  articles  would  be  against 
good  borrowing  principles,  while  six  months 
paper  would  be  proper.  A  loan  for  the  purpose 
of  buying  cattle  for  feeding  for  the  slaughter, 
would  be  perfectly  proper,  and  paper  secured 
by  such  collateral  eminently  safe;  but  it  should 
liquidate  itself  as  soon  as  the  cattle  are  sold 
to  the  meat  packers.  And  no  paper  is  bad 
that  is  self-liquidating. 

The   present    method    of    determining    the 

quality  of  commercial  paper  is  to  ask,  first, 

for   a   statement,   which   must   be   of   recent 

date;  then  to  analyze  it  and  determine  if  the 

j/ratio   of  obligations   to   debts   is   within   the 

j)  prescribed  limits,  usually  two  of  quick  assets 

'  to  one  of  quick  liabilities. 

The  proportionate  amount  of  quick  assets 
to  quick  liabilities  is  a  matter  concerning  which 
some  bankers  and  credit  men  do  not  agree; 
but  the  ratio  runs  from  one  and  a  half  to  two 
and  a  half  to  one,  depending  upon  the  char- 
acter of  the  business.  An  intimate  knowledge 
of  the  maker  of  the  paper  would  permit  a 
narrower  margin  than  if  the  paper  were  a 
long  distance  from  its  issuing  point.  More- 
over the  value  of  the  fixed  assets  can  be  more 
accurately  determined  in  the  case  of  home 
concerns. 

The  character  of  the  business,  the  gross  and 
net  profits,  etc.,  which  indicate  the  skill  of 
the  management  may  be  ascertained;  then 
to  check  the  paper  through  the  trade — that 
is,  to  ascertain  from  mercantile  houses  if  the 


maker  takes  advantage  of  the  trade  discounts; 
whether  bills  are  promptly  met  or  not,  and 
lastly  to  inquire  of  banks  that  have  bought 
the  paper  and  therefore  investigated  it  them- 
selves, if  they  have  found  it  satisfactory  both 
upon  inquiry  and  at  maturity. 

The  statement  should  be  recent,  certainly 
within  two  to  three  months,  and  if  possible 
statements  for  previous  periods  should  be 
obtained  for  comparison,  to  ascertain  how 
the  business  has  progressed.  Certain  classes 
of  trade  such  as  wool  and  grain  must  do  all 
buying  in  a  short  period  and  are  therefore 
heavy  borrowers  during  the  buying  season, 
and  a  statement  should  be  obtained  at  the 
height  of  the  season,  and  one  at  the  ebb,  to 
show  the  fluctuation;  for  in  such  lines  some 
firms  clean  up  and  go  out  of  debt  after  the 
selling  season  is  over  and  before  buying  begins 
for  a  new  year. 

The    Buying   of   Commercial   Paper 

In  buying  commercial  paper  no  hard  and 
fast  rules  can  be  laid  down,  but  the  general 
principles  of  credit  apply,  and  the  paper  must 
have  the  same  qualities  that  the  borrower 
would  be  expected  to  have  if  he  were  to  apply 
for  a  loan  on  his  single  name  note.  The 
maker  must  have  character — business  reputa- 
tion built  up  by  a  career  of  honest  dealing. 
He  must  have  demonstrated  the  capacity  to 
run  a  business;  to  conduct  it  with  efficiency; 
and  he  must  have  resources  ample  to  furnish 
backbone  for  the  business,  so  that  the  borrow- 
ing shall  be  for  current  needs  only.  It  is 
no  function  of  the  bank  to  furnish  permanent 
capital.  This  must  be  done  by  private 
capital,  bond  and  stock  issues. 

As  in  granting  credit  there  are  no  fixed 
rules,  so  in  analyzing  a  credit  statement  there 
are  no  infallible  tests  that  may  be  applied; 
it  is  an  art  acquired  in  the  school  of  experience 
supplemented  by  observation  and  study. 
Each  proposition  must  be  considered  by  itself 
in  the  light  of  the  data  at  hand,  and  judgment 
rendered  accordingly.  A  knowledge  of  the 
trade  customs  and  methods  is  useful;  like- 
wise the  manner  of  extending  credit  in  the 
particular  line;  buying  and  selling  methods, 
discounts,  datings,  etc.,  are  all  well  to  know 
as  helps  to  determine  the  credit  risk;  and  the 
credit  man's  work  is  never  done — there  is  al- 
ways "something  doing"  in  his  department. 

As  in  purchasing  securities  basic  rules  and 
principles  are  applicable  as  a  guide,  so  in  the 
purchase    of    commercial    paper,    there    are      \ 
accepted  principles  that  apply  to  all  paper. 
For  instance,  in  buying  stock,  a  long  record 


16 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


of  uninterrupted  dividends  is  a  most  healthy 
sign,  and  the  test  can  be  applied  to  any  security. 
So  also  in  buying  paper,  a  record  of  achieve- 
ment of  profit  making  extending  over  a  series 
of  years  is  a  sure  indication  of  able  manage- 
ment and  profitable  operation;  and  the  test 
is  not  difficult  to  make;  while  a  critical  exam- 
ination of  the  statement  requires  skill  and 
experience  not  generally  possessed  by  the 
average  banker.  A  few  general  rules  appli- 
cable to  the  purchase  of  commercial  paper  as 
a  broad  science  will  be  helpful;  but  they  are 
at  best  but  generalities,  detailed  discussion 
being  quite  beyond  the  possibiHties  of  the 
present  work. 

General  Rules  for  Buying  Paper 

1.  Buy  of  Responsible  Dealers. — The  first 
and  foremost  requisite  is  that  the  paper  be 
bought  of  a  dealer  of  standing,  whose  name 
is  synonymous  with  quality,  whose  credit 
department  has  made  a  thorough  investigation 
of  the  risk,  and  pronounced  it  good  enough 
to  offer  over  their  name.  There  is  no  warrant, 
however,  no  matter  how  large  the  house,  that 
the  note  will  be  paid;  the  only  warranty  being 
implied,  that  the  paper  is  genuine  and  is  what 
it  purports  to  be. 

2.  Diversify  the  Risks. — The  line  of  paper 
carried  by  a  bank  should  be  diversified,  both 
as  to  classes  of  paper  and  location  of  the 
borrowers.  The  paper  bought  from  brokers 
should  not  be  in  the  same  line  of  industry 
that  absorbs  loanable  funds  at  home.  It  is 
easy  to  distribute  the  risk,  both  as  to  amount 
and  as  to  the  trade  and  the  sectional  risk. 
While  one  trade  is  dull  another  might  be  good; 
and  while  one  section  of  the  country  suffers 
from  depression,  other  sections  might  be 
prosperous.  Following  the  advice  so  often 
quoted,  it  is  a  good  policy  not  to  have  all 
the  eggs  in  one  basket.  No  single  loss  can 
then  seriously  affect  the  bank's  condition. 

3.  Buy  Paper  based  on  Staple  Commodities. 
— ^The  paper  should  be  of  concerns  dealing 
in  necessities  of  life,  and  commodities  having 
a  wide  market,  and  not  such  as  have  limited 
utility  and  are  subject  to  the  whims  of  fashion. 

Since  the  proceeds  of  paper  is  to  go  into 
merchandise,  it  is  needful  that  the  merchandise 
be  of  a  selling  quality.  It  must  be  staple. 
Paper  thart5~rS5nedTbr  some  seasonal  whim 
of  women  would  be  risky  as  against  paper 
issued  for  groceries  or  meat.  Paper  issued 
for  rare  groceries  or  drugs  would  be  exceedingly 
slow  in  moving.  In  the  mercantile  world, 
commercial  paper  becomes  stock  and  the 
stock,  accounts  receivable;  these  in  turn  cash 


to  meet  the  maturing  paper.  In  manufactur- 
ing, commercial  paper  becomes  raw  material, 
the  raw  material  finished  product;  this, 
accounts  receivable,  and  these  money  to  meet 
the  paper. 

A  certain  New  York  wholesale  grocery 
prided  itself  on  the  fact  that  it  could  meet  any 
call  for  any  article  likely  to  arise.  It  had  a 
large  and  extensive  stock,  some  slow  moving. 
It  was  not  making  money.  It  did  not  have 
the  turnover  it  should  for  the  capital  employed. 
It  decided  to  abandon  its  policy  and  put  in  a 
quick  selling  stock,  and  depend  upon  its 
ability  to  get  rare  articles  on  call  rather  than 
keep  the  same  in  stock. 

It  is  obvious  that  the  paper  of  this  house 
issued  after  it  changed  its  policy  was  much 
better  quality  than  that  represented  by  its 
former    stock    of    slow    selling    merchandise. ; 

The    difference    between    paper    sold    for' 
financing  luxuries  and  paper  issued  for  neces- 
sities may  be  appreciated  by  the  fact  that  a  , 
large  automobile  concern  states  that  it  sells  )  ^ 
all  touring  cars  for  cash,  but  trucks  on  time, 
knowing  full  well  that  the  latter  will  help 
pay  for  themselves,  while  the  former  will  be     ^ "" 
an  item  of  expense  to  the  owner. 

4.  Buy  Paper  of  Established  Concerns  show- 
ing Healthy  Growth. — All  healthy  business  is 
the  result  of  growth.  But  few  of  the  large  in- 
dustries of  the  country  were  made  to  order. 
There  are  a  few  department  stores  that  have 
been  established  in  large  cities  by  men  who 
have  been  successful  in  other  places,  and  there 
are  many  large  concerns  that  are  the  result  of 
combination  of  smaller  ones;  but  in  the  last 
analysis  they  are  growths  and  not  creations. 
It  is  apparent  that  the  business  that  has 
grown  from  the  acorn  to  the  oak  is  a  much 
better  risk  than  one  made  to  order.  There 
must  be  a  history  of  achievement.  A  success- 
ful history  is  essential  to  success  for  it  demon- 
strates not  only  success  in  the  past,  but  the 
probability  of  continuance  in  the  future. 

5.  The  Same  Concern  Should  not  Issue 
Single  and  Double  Name  Paper. — When  a 
concern  floats  its  single  name  paper  it  is  for 
the  puqjose  of  taking  advantage  of  the  trade 
discounts,  and  if  its  receivables  appear  on  the 
market  at  the  same  time,  it  indicates  that  it 
is  not  taking  the  discount  for  all  purchases 
and  is  pinched  for  capital.  Therefore  only  one 
form  of  pajDer  of  the  same  concern  should 
appear  on  the  market.  Its  receivables  are  its 
best  quick  assets  and  should  not  be  sold. 

6.  No  Large  A  mount  of  Bills  Payable  Should 
Appear  on  the  Statement  -when  Single  Name 
Paper  is  Issued. — Commercial  paper   (single 


17 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


name)  being  issued  for  the  purpose  of  taking 
trade  discounts,  no  large  amount  of  bills 
payable  should  appear,  for  it  is  for  the  purpose 
of  paying  cash  that  the  single  name  paper  is 
sold. 

7.  Check  Through  Local  Banks  and  Pur- 
chasing Banks. — Local  banks  are  in  close  touch 
with  general  business  conditions  at  home  and 
the  standing  of  borrowers.  They  know  how 
they  live,  their  habits,  their  local  reputation, 
and  can,  and  generally  will  give  information 
at  first  hand  regarding  these  points.  Local 
bank  connections  should  be  carefully  inquired 
into. 

The  banks  used  for  references  should  have 
been  purchasers  of  the  paper  within  recent 
period,  for  credit  risks  change  quickly,  and 
what  might  have  been  a  good  risk  six  months 
or  a  year  ago,  might  at  the  present  time  be 
undesirable  on  a  recent  investigation.  But 
if  a  well  known  bank  has  bought  the  paper 
upon  investigation  and  found  it  satisfactory 
it  is  good  evidence  that  it  is  a  desirable  pur- 
chase. 

8.  Check  Through  the  Trade  References. — 
Trade  references,  at  least  three,  should  be 
checked  to  ascertain  the  credit  standing  in  the 
trade.  If  discounts  are  taken  as  a  fixed  policy, 
it  is  a  sign  of  strength.  If  bills  are  allowed 
to  lapse,  collections  slow,  and  the  account 
generally  unsatisfactory,  it  is  assuredly  a  sign 
of  weakness. 

9.  The  Statement  Should  be  Verified  by  an 
Independent  Audit. — The  statement  should,  if 
possible,  be  one  made  by  independent  account- 
ants who  have  nothing  at  stake  in  the  matter 
but  their  reputation  for  accuracy.  It  is  an 
inherent  weakness  for  a  man  to  magnify  his 
assets  and  minimize  his  liabilities,  and  even 
though  the  statement  be  made  in  perfect  good 
faith,  it  may  be  biased  in  favor  of  the  issuing 
concern. 

Certified  Audits  and  Registration 
OF  Paper 


-^ 


here  are  two  movements  in  connection 
with  commercial  paper  that  augur  well  for 
the  safety  and  stability  of  these  instruments 
in  banking  transactions,  namely  the  inde- 
pendent audit  and  registration.  The  inde- 
pendent audit  has  for  its  object  the  ascer- 
tainment of  the  financial  condition  of  the 
borrower  by  an  independent  party  whose 
sole  object  is  accuracy.  Borrowers,  however 
honest,  are  not  the  proper  ones  to  certify  as 
to  their  condition.  The  assets  are  apt  to  be 
magnified  and  the  liabilities  understated,  and 
only  a  careful  audit,  or  to  use  accountancy 


terms  correctly,  an  investigation,  will  assure 
the  real  condition.  This  should  be  made  by 
recognized  firms  of  public  accountants,  and 
should  be  periodical  and  compulsory  for  all 
borrowers.  Credit  men,  bankers,  and  clearing 
houses  are  taking  cognizance  of  the  value  of 
such  an  audit  and  lending  their  support  to  the 
movement.  Some  time  ago  the  Louisville 
Clearing  House  sent  out  notices  to  banks  and 
borrowers  in  the  Louisville  District  suggesting 
that  such  an  audit  of  borrowers  be  made  as 
preliminary  to  further  extension  of  credit. 

This  audit  will  not  only  reveal  the  financial 
condition  of  the  firm,  but  also  its  liabilities 
on  commercial  paper,  if  such  a  record  is  kept, 
and  if  not  the  audit  will  soon  place  this  in- 
formation in  the  hands  of  the  bankers. 

The  Federal  Reserve  Association  would 
seem  to  be  the  proper  medium  through  which 
such  a  campaign  may  be  waged,  and  with  the 
moral  force  of  the  Federal  Banks  back  of  the  re- 
quest for  an  audit  such  action  will  doubtless  fol- 
low. Moreover  credit  may  be  refused  all  firms 
not  complying  with  the  request  to  furnish  prop- 
er certificate  of  condition.  It  is  of  importance 
to  the  business  man  that  he  know  where  he 
stands,  and  of  more  import  to  the  banker 
who  lends  him  money;  for  while  false  state- 
ments of  condition  for  the  purpose  of  obtaining 
credit  are  a  penal  ofifense,  the  redress  usually 
comes  too  late,  and  it  is  frequently  hard  to 
prove  that  the  error  was  intentional ;  and  losses 
cannot  be  compensated  by  prison  sentence. 
The  prevention  is  better   than    the   penalty. 

Registration  of  Paper 

The  second  safeguard  is  the  registration 
of  all  paper  sold  in  the  open  market.  This 
registration  has  had  the  attention  of  various 
banking  bodies  since  1908  when  a  committee 
of  the  American  Bankers'  Association,  made 
an  exhaustive  study  of  the  subject  and  recom- 
mended that  there  be  some  supervision  of  the 
issuance  of  paper  off'ered  in  the  open  market. 
The  committee  also  recommended  an  annual 
audit  of  firms  issuing  paper,  and  the  registra- 
tion of  paper  under  the  supervision  of  Clearing 
Houses  in  New  York,  Chicago,  St.  Louis, 
Philadelphia,  and  Boston.  Under  this  plan 
banks  buying  commercial  paper  through 
dealers  would  have  prompt  and  ready  access 
to  an  independent  appraisal  of  the  assets  of 
each  borrowing  concern,  certified  by  an  ap- 
proved public  accountant,  and  could  promptly 
ascertain  at  any  time  the  amount  of  paper 
outstanding.  The  Clearing  Houses  did  not 
favor  the  plan  and  nothing  came  of  it. 


18 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


In  191 2,  a  Central  Bureau  of  Credit  Infor- 
mation was  proposed  to  the  Association,  to  be 
capitalized  and  supported  by  fees,  the  object 
of  which  was  to  safeguard  paper  by  furnishing 
information  relative  to  credits,  registration 
to  be  performed  by  selected  banks  and  trust 
companies.  This  plan  has  also  failed  to  enlist 
support,  but  the  three  avenues  of  registration 
that  are  open  are:  Trust  company  registration, 
Clearing  House  registration,  and  ,'registration 
under  the  Federal  Reserve  Association. 

In  1910  a  large  manufacturing  company 
with  a  large  output  of  paper  and  country  wide 
trade  arranged  to  have  its  paper  registered 
with  a  New  York  trust  company,  the  registra- 
tion to  include  notes  issued,  notes  indorsed 
and  drafts  accepted.  Daily  reports  are  made 
to  the  corporation  and  by  the  corporation,  so 
that  the  amount  of  paper  outstanding  at  any 
particular  time  may  be  accurately  known. 
Other  companies  have  followed  this  idea. 

Under  a  clearing  house  plan,  firms  in 
clearing  house  cities,  could  register  their 
paper  with  the  clearing  house.  In  fact  the 
country  might  be  divided  into  zones,  so  that 
every  part  of  the  country  would  be  included 
in  a  credit  zone.  All  paper  issued  could  be 
registered  with  its  zone  center  clearing  house, 
and  here  be  available  for  the  banker's  use. 

The  Federal  Reserve  Association  has  the 
power  and  the  machinery  for  putting  such  a 
plan  into  effect.       If  it  refuses   to  discount 


any  but  registered  paper,  it  will  wield  a  mighty 
force  in  that  direction. 

The  registry  of  paper  will  accomplish  two 
very  desirable  things:  It  will  certify  to  the 
authenticity  of  paper  and  the  regularity  of  its 
issue.  Bogus  paper  does  not  often  get  into 
banks,  especially  when  bought  of  reliable 
dealers  who  use  due  safeguards  to  see  that 
paper  is  regularly  issued.  But  it  has  been 
demonstrated  that  paper  might  be  genuine 
and  yet  doubtful.  Cases  have  been  brought 
to  light  in  recent  years  where  large  amounts 
of  paper  have  been  issued  with  authority,  yet 
it  wa?  nevertheless  unwarranted  and  merely 
accomm.odation  paper. 

Registration  will  check  the  amount  out- 
standing. The  recent  Claflin  failure  demon- 
strated above  all  things  that  there  is  need  of 
machinery  for  officially  determining  how  much 
paper  is  outstanding  at  any  particular  time. 
The  volume  of  the  Claflin  paper  was  unknown, 
unless  it  was  to  a  very  few,  and  a  system  of 
registration  of  such  paper  would  have  ad- 
vised banks  of  the  amount  outstanding  and 
the  load  the  firm  was  carrying  and  place 
them  on  guard. 

It  is  conceivable  that  firms  will  not  take 
kindly  to  such  a  practice,  as  it  will  divulge 
their  trade  secrets ;  but  a  firm  that  is  unwilling 
to  have  its  indebtedness  known  is  unwarranted 
in  assuming  to  borrow  in  the  open  mar- 
ket. 


Commercial  Paper  in  the  Trades 


Chapter  V 


BROADLY  speaking  all  business  concerns 
borrow;  it  is  needful  and  proper  that 
they  should,  for  by  so  doing,  the  busi- 
ness can  be  greatly  extended  and  its  profits 
enhanced.  There  are  a  few  concerns  strong 
enough  in  their  individual  capital  to  pay  cash 
for  all  purchases,  but  these  are  few.  And  with 
the  custom  of  trade  discounts  prevailing  in  this 
country,  it  would  be  an  act  of  business  folly 
to  refuse  to  borrow  when  a  distinct  profit 
accrues  through  borrowed  funds. 

Borrowing  follows  certain  established  lines, 
depending  upon  the  customs  of  the  business 
as  they  have  grown  up  in  the  particular  trade 
or  industry;  but  the  recognized  methods 
are  seven:  (i)  From  the  local  bank  on  note 
of  hand,  with  or  without  indorsement;  (2) 
from  the  local  bank  on  notes  of  customers 


given  in  trade  transactions  and  discounted 
with  the  bank;  (3)  from  the  local  bank  on 
pledge  of  security  in  the  form  of  stocks  and 
bonds,  warehouse  receipts,  bills  of  lading,  etc.; 
(4)  on  promissory  notes  (single  name  paper) 
sold  through  brokers  in  open  market;  (5)  on 
receivables  (customers'  notes)  sold  likewise 
through  brokers;  (6)  on  accounts  receivable 
assigned  to  or  discounted  with  banks  or 
business  factors,  and  (7)  for  capitalization 
purposes  on  mortgage  security,  stock  and  bond 
issues. 

The  scope  of  this  work  does  not  permit 
each  trade  and  industry  to  be  reviewed 
separately  in  respect  to  its  financial  rnethods 
and  general  scheme  of  operations,  but  in  order 
to  show  the  part  which  credit  and  credit 
instruments   play    in    such   operations,    it   is 


19 


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20 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


proposed  to  review  briefly  the  salient  facts 
regarding  a  few  of  the  leading  industries, 
representing  the  three  fundamental  economic 
wants  of  mankind,  namely,  food,  clothing 
and  shelter.  We  shall,  therefore,  give  a  brief 
resume  of  the  movement  of  a  cargo  of  grain 
from  the  farmer  to  the  bread  eater;  wool  from 
the  sheep's  back  to  the  wearer;  leather  from 
the  hide  to  the  pair  of  shoes;  lumber  from  the 
forest  to  the  dwelling;  cotton  from  the  field 
to  the  loom. 

We  also  give  facsimiles  of  some  of  the  docu- 
ments used  in  financing  the  export  trade  of  a 
few  of  the  leading  products,  viz.,  the  draft  or 
bill  of  exchange,  bill  of  lading,  insurance 
certificate,  invoice,  certificate  of  inspection,  etc. 

It  will  be  found  that  the  financial  operation 
of  these  industries  include  all  the  standard 
forms  of  borrowing,  from  the  bond  issue  to 
the  hypothecation  of  the  accounts  receivable. 

It  will  also  be  found  that  the  lower  down 
in  the  scale  of  business  operations,  the  less 
scientific  is  the  credit.  Goods  moving  from 
the  original  producer  to  the  wholesaler  as  a 
rule  are  on  practically  a  cash  basis;  from  the 
wholesaler  to  the  manufacturer  on  book  credit 
or  on  note,  the  credit  element  of  which  has 
been  carefully  considered.  From  the  manu- 
facturer to  the  retailer  or  jobber  on  credit  like- 
wise carefully  investigated.  But  when  the 
goods  go  from  retailer  to  the  consumer  on 
credit,  it  is  often  on  casual  acquaintance  and 
trust  in  the  buyer's  honesty.  And  because  of 
the  lack  of  careful  credit  operation,  many 
retailers  fail. 

The  failures  of  general  stores,  grocery,  meat 
and  fish  dealers  in  1913  totalled  4^389  out  of 
11,145  for  all  traders  in  the  United  States, 
showing  a  decided  tendency  on  the  part  of 
the  retailer  to  over  extend  his  credit;  for  most 
failures  are  in  the  last  analysis  due  tqjpoor 
credit  risks.  Moreover,  the  amount  involved^ 
irTthelailures  of  small  traders  was  $28,000,000 
out  of  a  gross  total  of  $115,000,000  for  all 
traders,  or  about  one- fourth. 

Raw  Material  Moves  for  Cash 

As  a  general  proposition  raw  material  moves 
from  the  producer  to  the  manufacturer  on 
cash.  The  goods  are  usually  shipped  on  bill 
of  exchange,  with  documents  attached.  The 
documents  are  released  only  upon  payrnent  of 
the  draft,  and  irrespective  of  where  title  to 
the  property  vests,  control  of  the  same  is  in 
the  holder  of  the  bill  of  lading. 

Banks  freely  lend  upon  such  security,  hold- 
ing the  documents  as  collateral  to  the  loan, 
and  by  virtue  of  the  nature  of  the  goods,  they 


are  a  prime  security  for  loans  within  limits  that 
will  allow  for  fluctuations  in  market  prices. 

On  a  through  shipment,  the  bill  of  lading 
passes  from  hand  to  hand,  following  the 
goods,  and  carries  the  consignment  from  its 
origin  to  its  destination;  but  where  it  is 
necessary,  as  for  instance  in  grain  movements, 
to  ship  first  by  rail,  then  by  lake  steamer, 
then  by  rail,  and  again  by  ocean  steamer,  the 
grain  must  be  transferred  several  times  before 
it  reaches  its  destination.  Obviously  the 
surrender  of  the  bill  of  lading  carries  possession 
of  the  goods,  and  to  surrender  this  instrument 
is  to  surrender  both  control  and  title.  There- 
fore in  moving  the  commodity  from  rail  to 
steamer,  through  warehouse,  elevator,  etc., 
the  bill  of  lading  must  be  secured  in  order  to 
make  the  transfer.  Control  of  the  goods  is 
retained  by  taking  a  "trust  receipt"  for  the 
same  and  surrendering  the  bill  of  lading. 
When  the  physical  transfer  is  made,  the  trust 
receipt  is  replaced  by  another  bill  of  lading, 
which  goes  forward  with  the  shipment.  By 
this  process  control  is  vested  in  the  holder  of 
the  bill  of  lading  (lender)  and  risk  avoided. 

In  some  lines,  as  for  instance,  grain,  the 
draft  is  paid  when  presented,  even  though  the 
goods  are  en  route.  The  bill  of  lading  is  left 
as  collateral  for  loans,  and  as  sales  are  made 
and  goods  move  forward,  the  bills  already 
deposited  are  taken  up  and  others  lodged. 
Thus  there  is  a  constant  flow  of  bills  of  lading 
in  and  out  of  the  loan  collateral,  as  transactions 
are  made.  Houses  in  poor  credit  would  of 
course,  have  to  pay  cash  on  presentation  of 
the  bill,  and  those  working  on  a  small  margin 
would  have  to  sell  as  fast  as  they  buy  in  order 
to  keep  things  moving,  but  the  banks  will 
carry  the  burden,  if  a  sufficient  margin  is 
maintained  to  protect  the  bank  from  loss  in 
market  fluctuations. 

The  need  for  banking  afliliations  that  will 
advance  large  sums  on  credit,  based  on  the 
raw  material  will  be  seen  from  the  fact  that 
some  large  mills  buy  cotton  and  wool  in  a 
single  purchase  or  set  of  purchases  in  quantities 
sufficient  to  last  a  whole  season.  And,  more- 
over, a  large  part  of  the  labor  is  expended  and 
paid  for  months  before  the  goods  are  market- 
able. 

The  Textiles 

The  textile  trade  divides  itself  into  four 
branches:  (a)  Manufacturing  establishments; 
(b)  commission  houses;  (c)  jobbers  and  (d) 
retailers.  These  commission  houses  or  factors 
are  of  four  classes  also:  (a)  The  selling  agent 
who  has  no  capital  invested  in  the  business, 


21 


:93  c -/CO 


^ 


"With  the  exception  of  riaka 


E 


/Qj^Ot-..  ,,         ^    .  No.       185200 

Certificate  sot   llnsurance> 

;;      ^^STjfCTCP  BY 

V  '"'•  New  York  City,  N.  Y.,  J^CoJ  /C    iqiV 

Qlt^SiBtoCIItftifg.Thatonthe  /<f?  day  of  t/l^dS/Z/  \^\^ 
there  was  iiwnm  with  The  Sea  Insurance  Company,  Limited,  -  (^) 
and  the  British^  Forels:n  Marine  Ins^jNdce  Company,  Limited,  -  (%) 
for  account  o^  \^LD  &  NE\^LE.    '\\ 

07i^   C^^:^ic^CuyucC^2t</k&£^  Pounds  sterling  on 

£)OZ/e.  >^,4UJiy^j:0>^££^  gALES  CQTTON,  valued  at  sum  insured,  per 

^/S  >^<X£^^  -<  ^     ,^  other  steanier  or  steamers,  at  and  fiom 

^4V<-<J    '^^'-^^'^--^      O  ^  '     S    ""I     ?'  and  connecting  lines 

to  1'   ^  .^  Jnd  theoce^o  |.^Jf>2/eC7a>  o^<!. 

It  is  hereby  uiideratood  and  a(ree4  UuK,  in^fse^  k^  «dch  loss  is  payable  to  the  order 
of  WELD  ftXEVILLE  ot^,  B\^end^  if  -fiiisT  Certificate,  which  represents 
and  takes  the  place  of  the  Policy,  and  contrey*  all  'th«  nilin  o^the  Original  Policy-holder,  (for 
the  purpose  of  collecting  any  claims  for  loss  or  damage^  aa  raHj^s  if  the  property  were  covered 
by  a  special  policy  direct  to  the  holder  hereof,  (md  is  fi^  frcm  any  liability  for  unpaid  premiums. 

"ThU  certificate  U  lahfcct  to  the  full  terms  of  the  poster  iv  l^mxct  of  bdtw  wBntttad  free  of  captan,  aeiaim  and  detentloo,  and 
the  cotucquences  thereof,  or  of  aor  attempt  thereat,  and  aldo  fr«a  all  Lu— tijh'lnna  of  fiote.  civU  oommotloM,  iaanjiacUonj.  bootlUtiea 
or  warlike  operation!,  whether  beforr  or  after  Declaration  of  War." 

_  O  liMMtl  MM  Until 

Hat  (lU  Pilrn  CoailtrtltMd  trWOO  4  inuiL 


Coiiotersigiieil 


\>J\\AXXiJL,  Peck  &  Hughes, 


PKCSIDINT 


Co  o„f»  °a 


2  *:.'h 

'  ?'  I  If- s 
B  sis-so i 


5.8  r 


li^^  |.^ 

C3  tr"  E"  aT^ 

5.^ -els  si 
^ c5S  9  at 

3..  8'?^' 

°B--     iff 

sir 'Is 

?  21H1 


HKfjl 


WELD  &   NEVILLE, 


No.  ^  ^  7 
>JNVOICE  OF  -  /i^^.  -.  -y-BAUB  Cotton  smesD  won  '^ 


roR  ACCOUNT  AMD  RISK  OF 


0^ 


,€4^ 


L8S8  PREICHT  ON     V\3   /  S*(0  LB».  «0^6    <P 


AHooiw  or  Draft  ff     fc?  O      •  Davb  Sicht 


'^3^^ 


"TTla/n. 


^ 


v.. « 


KfW  York,  ^  -V^  ^^  1^'^^  ^ 
lEVILLE, 


WELD] 

PER 


^Q^Ao-. 


0.  E. 


22 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


but  is  merely  selling  agent;  (b)  the  finance 
house,  which  does  not  sell,  but  lets  out  space 
in  its  building,  makes  advances  on  merchan- 
dise and  discount  sales  made  by  the  various 
departments  and  obtains  its  profits  from 
charges  for  such  advances,  discounts  and 
commissions  on  sales;  (c)  the  commission 
house  which  buys  accounts  receivable,  guar- 
antees sales  and  makes  advances;  and  (d) 
the  commission  houses  which  own  or  control 
the  mills,  or  are  owned  by  the  mills,  for  which 
they  act  as  selling  representatives. 

Cotton  and  Cotton  Financing 

Through  the  courtesy  of  Weld  &  Neville 
of  New  York,  members  of  the  New  York 
Cotton  Exchange,  we  reproduce  herewith  the 
documents  used  in  financing  cotton  in  the 
export  trade. 

The  United  States  produces  about  two- 
thirds  of  the  cotton  supply  of  the  world, 
estimated  to  be  about  24,000,000  bales  yearly, 
the  standard  bale  being  500  pounds.  This  is 
produced  in  a  growing  season  of  about  160 
days  from  planting  to  harvest,  and  is  the  one 
crop  that  requires  constant  care  during  the 
whole  period  of  production,  and  therefore 
necessitates  a  large  expenditure  in  labor. 
The  exports  of  raw  cotton  during  the  year 
1912-13  amounted  to  $551,962,000,  and  cotton 
therefore  constitutes  one  of  the  principal 
items  in  our  international  exchanges.  The 
average  price  in  the  United  States  in  1913 
ranged  from  10^  cents  to  13.40  cents,  and 
the  average  farm  price  in  June  1913  was  11.5 
cents,  showing  that  the  farmer  received  the 
major  part  of  the  value,  only  a  small  fraction 
being  consumed  in  marketing  the  product. 
Liverpool  is  the  great  cotton  market  of  the 
world,  and  Manchester  the  center  of  cotton 
yarn  and  cloth. 

Old    System    of    Financing    Cotton 

The  old  method  of  financing  cotton,  par- 
ticularly up  to  the  point  of  starting  on  its 
way  to  market  was  the  crop  lien  system,  which 
still  obtains  to  a  large  extent.  Under  this 
system  the  merchants  of  the  South  became 
bankers  to  the  cotton  planters,  and  supplied 
the  credit  facilities  necessary  to  produce  the 
crop.  The  merchant  would  furnish  the  seed, 
fertilizer,  and  machinery,  and  even  buy  the 
draft  animals  necessary  to  the  farm,  taking 
a  crop  lien  on  the  expected  crop.  Supplies 
for  the  farm  hands  were  furnished  during  the 
season,  and  when  the  crop  matured,  it  was 
turned   over   to   the   merchant   to   liquidate 


the  loan,  credit  being  given  for  the  crop  at 
an  agreed  price. 

The  evil  of  this  sytem  was  the  excessive 
interest  cost  to  the  farmer.  The  merchant 
charged  his  own  prices  for  produce,  and  had 
the  farmer  absolutely  at  his  mercy.  Those 
not  familiar  with  exact  market  conditions  could 
be  forced  to  sell  their  crop  below  the  market, 
and  the  crop  lien  lead  to  grave  abuses.  The 
farmer  was  bond  slave  to  his  merchant,  in 
poor  times  being  a  year  or  two  behind  in  his 
payments,  the  crop  in  expectancy  being  mort- 
gaged to  liquidate  the  credit  utilized  to  raise 
the  crop  matured. 

Present  Methods  of  Financing 
Cotton 

From  the  plantation  the  cotton  goes  to  the 
gin,  where  the  seed  is  removed  and  the  cotton 
is  compressed  into  bales  28x56x42  inches, 
weighing  approximately  500  pounds,  the  unit 
of  cotton  as  a  movable  commodity,  the  pound 
being  the  unit  of  price  quotations.  The  bale 
weight  includes  about  20  pounds  of  steel 
straps  and  bagging.  From  the  local  gin  it 
goes  to  one  of  the  larger  concentrating  points, 
where  it  is  graded  and  again  compressed  to 
28x56x18  inches  and  is  then  ready  for  the 
mill  or  for  export. 

Considerable  cotton  is  sent  to  cotton  factors 
on  consignment,  who  store  the  same  awaiting 
marketing,  advancing  up  to  about  70% 
of  its  value.  When  the  cotton  is  sold,  these 
advances  are  repaid,  plus  the  carrying  charges, 
which  include  interest,  insurance  and  storage 
costs. 

Although  the  cotton  thus  stored  does  not 
belong  to  pledgj|ors,  it  is  accepted  by  banks  as 
collateral  for  advances,  and  such  loans  are 
constantly  made  and  well  regarded  by  banking 
institutions. 

A  large  part  of  the  cotton  is  sold  through 
brokers  and  middlemen,  to  the  mills  direct  or 
on  export  orders.  This  cotton  goes  from  the 
local  compress  to  the  railroads,  where  bills 
of  lading  are  issued,  drafts  attached  and 
placed  in  bank  for  collection  and  credit. 
Where  the  cotton  is  moving  from  a  local  buyer 
to  a  large  operator,  the  local  bill  is  surrendered 
upon  receipt  by  consignee,  and  compress 
receipt  issued,  which  becomes  the  bank's 
security  for  advances  made  upon  the  cotton 
consigned  by  the  local  buyer. 

It  is  said  to  be  the  custom  in  many  instances, 
at  the  opening  of  business,  for  the  bank  to 
deliver  to  the  cotton  men  wallets  containing 
all  the  collateral  of  the  firm,  which  is  kept  by 
the  cotton  dealer  until  the  close  of  the  day. 


k 


23 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


In  the  meantime,  the  bank  has  no  tangible 
evidence  of  its  security.  Substitutions  are 
made  as  the  occasion  requires,  and  the  wallet 
is  returned  at  night.  The  standing  of  the 
cotton  men  is  such  that  this  is  considered  a 
safe  practice. 

Cotton  for  Export 

Cotton  for  export  is  taken  from  the  compress 
and  delivered  to  the  railroad  which  issues 
through  bills  of  lading  thereon,  which  carry 
the  goods  to  the  seaport  and  into  the  steamer. 
Drafts  are  drawn  on  the  buyer,  attached  to 
the  bill  of  lading,  with  insurance  and  other 
papers,  and  given  to  the  bank  for  collection 
and  credit.  These  are  sold  in  the  foreign 
exchange  market,  such  bills  forming  one  of 
the  principal  items  of  foreign  exchange. 

When  the  sale  is  made,  the  terms  are  agreed 
upon  between  the  buyer  and  seller.  Most  of 
the  cotton  is  shipped  on  bankers'  credits, 
which  means  that  the  seller  is  advised  to  draw 
for  the  amount  upon  a  designated  bank,  and 
for  how  long  a  time.  This  in  substance  is  a 
guaranty  that  the  bank  named  will  accept 
ihe  bill  upon  presentation.  Documents  are 
delivered  either  upon  acceptance  (which  is 
the  most  common  method)  or  upon  payment. 

European  buyers  of  cotton  who  have  repre- 
entatives  in  the  South  purchase  and  ship 
cotton  to  their  principals  without  the  inter- 
vention of  banks.  Such  drafts  are  not  of 
course  of  the  same  strength  as  those  drawn 
r-upon  well-known  banks. 

While  the  custom  of  financing  the  farmer 
through  cotton  factors  and  merchants  still 
obtains  to  some  extent  in  some  places,  and  to 
a  noticeable  extent  in  others,  the  growth  of 
banking  facilities  in  the  South  is  gradually 
changing  the  credit  operations  to  a  cheaper 
and  more  scientific  basis,  the  banks  furnishing 
the  credit  needed. 

The  case  is  well  summed  up  by  a  New 
Orleans  banker  who  says: 

"The  business  has  shown  a  tendency  of 
late  years  to  be  confined  largely  to  the  country 
merchants  and  country  banks,  who  advance 
direct  to  the  small  farmers,  taking  such 
security  as  they  find  acceptable  which  the 
farmer  has  to  offer.  Where  the  country 
merchants  advance  to  the  farmers,  generally 
in  the  shape  of  supplies,  they  take  the  notes  of 
the  latter  and  the  country  bankers  rediscount 
for  them. 

"Of  late  years,  the  cotton  is  all  compressed 
in  the  country,  and  the  foreign  buyers  have 
preferred  to  deal  with  the  sellers  in  the  interior 
towns,  thus  making  of  ihe  ports  mere  plat- 


forms where  the  cotton  is  discharged  from  the 
cars  and  loaded  on  the  ships;  the  so-called 
Rail  Road  through  Bill  of  Lading  covers  the 
shipment  from  start  in  the  United  States  to 
the  finish  abroad. 

"If  the  sale  is  made  by  an  exporter  in  one  of 
the  ocean  or  gulf  ports,  he  usually  furnishes 
an  ocean  bill  of  lading,  which  has  the  advan- 
tage that  the  steamer  is  named  therein,  so 
that  the  consignee  knows  exactly  when  his 
cotton  ought  to  arrive." 

Wool  and  Wool  Paper 

The  wool  industry,  in  the  raw  material  and 
finished  products,  constitutes  one  of  the  most 
important  of  all  our  industries,  the  wool 
production  of  the  United  States  being  over 
318,000,000  pounds,  with  importations  of 
over  135,000,000  pounds.  Fifty  million  sheep 
produce  the  crop,  Montana  leading  with 
33,000,000  pounds  from  the  backs  of  five 
million  animals. 

The  manufacture  of  wool  and  worsted  goods 
employs  over  $506,000,000  capital  in  1,124 
establishments;  uses  over  $322,400,000  of  raw 
material  yearly;  adds  $185,000,000  to  the 
value  of  the  raw  material  by  manufacturing, 
and  employs  202,000  persons. 

The  raw  material  does  not  change  hands  many 
times  from  producer  to  consumer,  the  bulk 
of  the  wool  used  in  the  textiles  being  scoured 
(cleaned)  at  the  mill.  But  the  finished  prod- 
uct, being  a  necessity  of  life  finds  its  way 
into  thousands  of  distributing  channels  before 
it  reaches  the  final  consumer,  the  wearer. 
The  financial  operations  likewise  become  com- 
plex as  the  channels  of  distribution  become 
numerous.  The  movement  of  wool  is :  Ranch 
(most  generally)  to  Boston;  Boston  to  mill, 
mill  to  cloth;  cloth  to  jobber  or  commission 
merchant;  jobber  to  retailer  or  clothing  manu- 
facturer; to  wearer. 

Wool  is  sometimes  bought  on  the  sheep's 
back,  the  buyers  going  out  early  in  the  year 
and  bidding  on  the  contemplated  "clip." 
Shearing  in  Montana  and  Wyoming  begins 
about  April  ist  and  is  finished  by  July  ist. 
Some  growers  are  large  enough  to  deal  directly 
with  the  large  buyers,  but  small  producers 
sell  to  local  buyers  who  in  turn  sell  to  the 
wholesalers.  After  clipping,  the  wool  is  as- 
sembled in  warehouses  for  inspection  of  the 
buyers. 

Boston  the  Wool  Center 

Boston  is  the  center  of  the  wool  industry      \ 
in  this  country  and  ranks  next  to  London  as 
the  wool  center  of  the  world.     Seventy  per 


24 


COMMERCIAL    PAPER    AND    BILLS    OF    EXCHANGE 


cent,  of  all  the  wool  raised  in  this  country  and 
imported  passes  through  Boston,  one  wool 
warehouse  having  cost  over  three  and  one- 
half  millions,  and  holds  120,000,000  pounds  of 
raw  wool — over  one-third  the  entire  clip  for 
the  country.  The  financing  as  well  as  the 
buying  therefore  centers  in  that  city.  And 
since  the  buying  is  all  done  in  a  few  months, 
the  bank  accommodation  required  is  enormous. 

Risk  in  Buying  Wool 

The  chief  risk  in  buying  the  raw  wool,  and 
the  highest  skill  involved  in  the  business, 
strange  as  it  may  seem,  lies  in  determining  how 
much  dirt  and  grease  the  wool  contains;  that 
is,  how  much  pure  wool  there  is  in  a  pound 
of  fleece.  Raw  wool  is  bought  on  the  "clean 
and  scoured"  basis,  and  the  buyer  must  there- 
fore calculate  with  a  nicety  how  much  the 
shrinkage  will  be.  An  error  of  1%  on  a 
million  pounds  means  $5,000,  and  a  mistake 
of  5%  means  $25,000. 

The  raw  fleece  is  so  matted  with  oil  and 
dirt  that  it  will  hold  together  like  a  sheepskin, 
and  in  buying  from  the  local  dealer,  several 
fleeces  from  different  parts  of  the  lot  are 
examined  and  the  shrinkage  estimated,  quality, 
fineness,  strength,  etc.,  determined;  and  bids 
made  accordingly. 

The  enormous  waste  in  handling  wool  can 
be  appreciated  when  it  is  remembered  that 
60%  is  dirt  and  grease,  which  must  be  packed, 
shipped  and  freight  paid  thereon.  In  350,- 
000,000  pounds,  this  is  a  very  large  item. 
Some  of  the  wool  is  graded  in  the  West  and 
holds  it  grade,  while  most  wool  is  graded  in 
Boston  by  experts;  but  the  scouring  is  always 
done  at  the  mill. 

The  small  producer  is  of  course  paid  in 
cash  by  the  local  buyer,  the  banks  furnishing 
the  needed  accommodation;  but  in  the  case  of 
large  producers,  it  goes  direct  to  Boston,  the 
West  in  fact  having  inadequate  storing  facili- 
ties for  any  great  quantity,  so  that  it  does  not 
remain  long  in  the  buyers'  hands,  moving  on 
bill  of  lading  and  draft  to  Boston,  where  it  is 
placed  in  warehouse,  certificates  issued  against 
it,  which  are  lodged  as  collateral. 

Wool  Credits 

Some  of  the  large  buyers  are  strong  enough 
to  borrow  on  single  name  paper,  and  inasmuch 
as  the  raw  material  is  bought  in  about  three 
months,  and  from  six  to  nine  months  elapse 
before  realizing  upon  it,  the  place  wool  holds 
in  the  financial  operations  of  banks  will  at 
once  become  apparent.  The  wool  is  sold  to  the 
mills  on  60  days  credit,  1%  discount,  10  days. 


The  financial  operations  of  the  mills  will  be 
found  under  the  subject  of  "Factors"  who 
are  largely  responsible  for  the  financing  of 
the  mills.  Some  of  the  mills  sell  their  single 
name  paper,  but  receivables  are  not  an  ele- 
ment in  their  financial  scheme. 

After  manufacturing  into  cloth  it  is  sold  to 
the  trade  through  factors  or  commission 
merchants,  who  not  only  act  as  selling  agents, 
but  in  a  sense  are  bankers  to  the  mills  also. 

Dating  Invoices  Ahead 

Inasmuch  as  all  goods  are  seasonal,  manu- 
facturing must  be  done  long  in  advance  of 
the  actual  consumption,  and  long  credit  is 
therefore  essential.  One  of  the  largest  of  the 
textile  manufacturers,  operating  34  mills, 
employing  30,000  hands  and  manufacturing 
50,000,000  yards  of  cloth  a  year  sells  on  the 
following  terms:  Goods  for  fall  trade  are 
sold  in  the  spring  and  are  delivered  in  August, 
September  and  October,  and  are  dated  as  of 
June  ist,  on  the  following  discounts:  10/10; 
8^/30;  8/60;  7/4  (months).  Goods  for  the 
spring  trade  are  dated  as  of  December  ist. 
Some  houses  offer  more  liberal  discounts,  such 
as  10%  discount  within  30  days  from  end  of 
month  of  sale.  Others  date  as  of  June  30  and 
December  31;  but  the  dating  ahead  of  the 
invoice  will  be  clear  from  the  above. 

From  the  factor  or  selling  agent  the  goods  go 
to  the  clothing  manufacturers  who  turn  the 
cloth  into  garments.  Garments  sold  for  fall 
trade  are  dated  June  i,  discounts:  7/10;  6/30; 
5/60.  This  is  the  rule  with  all  large  and 
reliable  clothing  manufacturers. 

The  "Factor" 

In  financing  manufacturing  concerns,  par- 
ticularly in  the  line  of  textiles,  there  has  arisen 
a  combination  of  selling  agent  and  banker 
commonly  called  the  "factor,"  whose  function 
is  a  double  one — that  of  selling  the  output 
and  financing  the  operations.  The  importance 
of  these  houses  may  be  seen  from  the  fact 
that  the  gross  turnover  of  one  of  the  largest 
in  New  York  is  upwards  of  a  million  a  week. 

A  great  many  mill  owners  and  managers  do 
not  have  the  necessary  capital  to  finance  their 
business  and  have  to  borrow  money  with 
which  to  pay  for  their  raw  material  and  hold 
large  stocks  of  completed  goods  on  hand. 
These  mill  men  go  to  firms  who  make  a 
business  of  loaning  money  and  borrow  it,  after 
an  investigation  has  been  made  as  to  the 
standing  of  the  mill  owners.  Sometimes  the 
factors,  not  only  make  loans  but  act  as  in- 
dorsers  on  the  paper  of  the  mill  men.    They 


25 


Oct.  271 


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NYE&^JENKS  GRAIN    CO. 


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Documents  For  Payment 

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26 


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COMMERCIAL    PAPER    AND    BILLS    OF    EXCHANGE 


also  act  as  selling  agents  and  for  this  work  they 
collect  a  commission.  All  of  these  transac- 
tions are  usually  defined  in  a  contract,  and 
the  factor  gets  a  large  or  small  per  cent,  and 
commission  in  accordance  with  the  bargain 
he  is  able  to  drive  with  the  mill  owner. 

These  factors  also  act  as  financial  sponsors 
for  the  mill  men,  "accept"  their  paper  and 
make  advances  on  consignments.  Apparently 
there  are  a  great  many  irresponsible  com- 
panies in  the  textile  business  who  send  their 
salesmen  out  amongst  the  trade  with  promises 
of  deliveries  of  large  stocks  of  goods  at  low 
prices  at  some  time  in  the  future.  The  con- 
cerns which  are  ordering  these  goods  want  to 
be  sure  that  the  deliveries  will  be  made  as 
promised,  and  if  they  are  not  sure  of  the 
standing  of  the  mill  man  they  ask  him  who  his 
factor  is.  If  the  factor  is  well  known,  that 
is  enough  for  the  purchaser;  for  he  feels  sure 
that  a  responsible  firm  of  factors  would  not 
act  for  an  irresponsible  firm  of  mill  men. 
Moreover,  some  factors  agree  to  make  good 
to  any  firm  losses  it  may  suffer  through  the 
failure  of  a  factor's  client  to  live  up  to  his 
contract.  Therefore,  the  name  of  a  factor  is 
valuable  to  any  mill  man  who  wishes  to  make 
contracts  for  manufacturing  or  for  sales  for 
future  delivery. 

The  Factor's  Operations 

There  are  several  ways  in  which  the  factor 
operates.  He  may  contract  with  the  mill  to 
sell  its  entire  output.  Goods  are  sent  to  his 
place  and  displayed,  a  portion  of  the  building 
being  set  aside  for  the  use  of  that  particular 
mill,  with  a  man  in  charge.  The  factor  will 
make  advances  on  the  goods  received,  as 
for  instance  upon  receipt  of  $25,000  worth  of 
goods,  he  will  advance  say  $15,000  at  once, 
which  provides  the  mill  with  its  current  funds. 
Or,  he  may  allow  the  mill  to  draw  upon  him, 
not  for  the  price  of  goods  shipped,  but  as  a 
finance  bill  in  foreign  exchange.  This  will 
be  accepted  and  sold  in  the  market.  It  is 
really  accommodation  acceptance,  but  lends 
the  credit  of  the  acceptor,  which  is  well  known 
to  that  of  the  mill  which  might  be  unknown. 

Another  department  of  the  factor's  work 
consists  of  financing  mills  for  which  he  may 
not  be  selling  agent.  Thus  there  are  firms 
in  New  York  which  will  discount  accounts 
receivable.  The  operation  is  as  follows :  When 
a  bill  of  goods  is  sold,  the  invoice  is  stamped 
"This  bill  assigned  to  A.  B.  and  Co.,  to  whom 
payment  should  be  made."  Upon  so  assigning 
the  bill,  the  factor-banker  will  advance  usually 
up  to  80%  of  the  amount,  for  which  an  in- 


terest charge  is  made.  If  the  seller  wishes  the 
collection  of  the  bill  guaranteed,  he  will  pay 
an  additional  sum  as  insurance  premium  for 
the  surety  of  his  money.  The  process  simply 
means,  that  the  factor-banker  buys  the  ac- 
count, taking  the  risk  of  collection,  for  which 
he  operates  a  well  organized  credit  department. 

If  the  full  amount  of  the  bill  is  at  once 
desired,  a  further  charge  is  made  to  cover  the 
risk.  It  is  a  highly  profitable  line  of  credit 
operation.  In  some  cases  6%  is  charged 
upon  the  advance  made,  for  the  time  to  run 
and  an  extra  charge  for  the  balance;  thus  in 
case  80%  was  advanced  at  6%  on  a  hundred 
dollars,  the  charge  would  be  $4.80  for  a  year. 
If  the  bill  is  to  be  guaranteed,  a  further  charge 
of  6%  flat  on  the  balance  is  made,  or  $1.20. 

The  factor  secures  money  to  himself,  first 
by  the  strength  of  his  own  house,  being  able 
to  borrow  of  his  own  bank  on  his  note  of  hand, 
without  pledge  of  security.  Or  he  may  sell 
the  accepted  paper  of  the  mill  and  thus  secure 
funds;  or  issue  single  name  paper.  Some  of 
these  factors  never  appear  to  borrow,  having 
private  capital  sufficient  for  their  needs.  One 
of  the  largest  factors  in  New  York  borrows  on 
both  their  single  name  paper  and  acceptances, 
and  another  on  its  single  name  paper. 

Bills   of   Exchange   in   a   Shipment 
OF  Grain 

We  are  indebted  to  the  Nye  &  Jenks  Grain 
Company  of  New  York,  members  of  the 
New  York  Produce  Exchange,  for  the  accom- 
panying documents  which  are  used  in  financing 
grain  in  the  export  trade. 

In  the  movement  of  grain,  bank  credit  and 
credit  instruments  play  an  important  part, 
but  individual  credit  does  not  appear  until 
the  finished  products  move  from  the  whole- 
saler to  the  retailer,  and  from  him  to  the  ulti- 
mate consumer. 

All  transactions  in  grain  are  carried  on  by 
means  of  bills  of  exchange,  payment  for  which 
must  be  made  before  the  goods  are  delivered 
to  the  buyer;  but  inasmuch  as  the  raw  material 
changes  hands  many  times  before  it  reaches 
its  final  destination,  physical  possession  of 
the  goods  is  not  desired,  but  merely  title 
thereto,  or  control  thereof,  which  is  evidenced 
by  either  a  bill  of  lading,  rail,  lake,  or  ocean, 
an  elevator  receipt  or  trust  receipt. 

In  order  to  obtain  possession  of  the  bill  of 
lading,  and  therefore  constructive  {X)ssession 
of  the  goods,  the  bill  must  be  paid  upon  pres- 
entation, which  is  often,  if  not  generally, 
before  the  arrival  of  the  goods.  Therefore 
the  buyer  must  either  have  abundant  capital 


X 


27 


)^^/M£:.  Pounds  Sterling 


NEW  YORK  BRANCH. 


No. 


British  and  Foreign  Marine  Insurance  Company,  Limited. 


ate.  ■.  HITWOIltH,  Caa.,  Cauaau. 


HKItaCIIT  w. 


PRINCIPAL   OFFICES   AND    BRANCH    OFFICES: 


UVERPOOC  SCMlkltf 


<: 

CQ 

D 

CO 

as 

h 
O 

u 
I- 

"< 
o 


U 

u 


Satis,  1^..  0.il..ili..  inNDON     I  nu  >~l  Si~<  f  ■"■• '  *™"-  **"-  «'"'"■''*"■ 

SYDNEY,  M  RM  H:  H-*T  c<»..i,  M...O'.  MEIBOURNE.  t7  ( 


KEW  YORK,  Ctt>  E>ck>i«.  B<<Ui.f,{.^ 


J^^i^  ^f^^t^- 


Shipped    oa    boari 
at  and    from- 


«id^  th.   -^   /yM^^;r^= 


loBt,  luch  loM  it  payable  to  the  order  of 

This   Certificate   represeou  and   uket  th^^lace   ofi 
purpoie  of   collecting  any  Iom  or  claim),   u  TuUy   Ui 
Certificate,  and  free  from  any  liability  (or  unpaid  premil 

OlataiM  to  b*  kdJulMl  ftoeanllnc  to  tha  uncm  of  Llotd*.  bot  »ab/o^r\> 
41tloQ«  of  tao  FoUoy.  ,    ^  ^ 

BUpnwDt*  to  London  u««ovor«d,  InolndlDg  i1»k  of  ipeolal  Ilgbtoi 
tetlon  Ttft  QUOT  or  alio. 

TbU  OflHu[e»U  u  loMMd  InOrlalnAl  and  DnpUoate.  one  of  which  b«l] 
«b*  other  to  itaad  noil  and  toM. 

To  eoBlona  wltb  tlw  Botobvo  Iaw«  of  Orsat  Brltalo,  la  order 
OonlfloatomnfltbotUmMdwithtaTEN  hays " 

TUt  OuttBeaM  obaU  not  bo  vltlfttod  br  i 
r  iBteroot  or  by  dovlotloa  proTldad  <" 


aaA  conTeyt   all  Xhm  i^hta  of   the  Original  Policy-holder  (for  the 
operty  il»e  cowred  by  U  Spefeul   Policy  direct  to  the  holder  of  this 


ludlood  br  onr  urrooiKrat 
■peolftUr  ocTMd  that  tin 
tbe  Bill*  of  Ladlnx  and/or 


herob7  i 

ueoiou '~-  " 

iQBuraaoe. 

TeueU  ao  betvoon  ttio  »Miired  and  aMnrer*  to 


\  ^^% 


•oonaotaMWiitoUioaMnrod.  and  an  additional  premli 

It  u  herabT  airreod  that  any  looa  or  elahn  under  thu  Oertiaoato.  ohaU  bo  paid 

onrront  rato  or  exriUn««  at  tto  OIBoeo  <rf  tbo  Company,  In  Vew  York.  Uvorpool.  London, 
f  th«  acenoleo  a«  p«r  baok  of  thia  Oortltloate,  provided  ll  U  oo  otlpnlatod 

~     bat  the  olalmi  aro  to  bo  paid  at  raeh  agoner. 

robT  hold  ooTored  In  oaoe  of  tranafer  of  pai 
■  other  than  tboao  oamod  In  this  Ortino« 
that  parHonlan  of  any  aneh  traoofen  ahal]  be  promptly  aeat 
aaoarod  wlienever  the  eame  ehall  oome  to  thetr  knowledr*. 

tnoiudinx  riaka  of  oraft  to  and  (torn  the  V«Mel.  It  bemg  eapeofally  agreed  that  in 
eaaeofahlpmeotii  to  LlTerpool  this  laauranoe  Include  "  -*--  *         "■  '  — "■ 

charging  In  the  rlrer  or  In  any  dock  on  either  aide  ol 
eaao  of  aiilpnienta  to  Hambnrg  craft  risk  to  Altona 
Aaae  of  ahlpmenta  to  Bremen  oraft  rlak  from  BremenbaTen 
taoaired. 

Warranted  free  from  partJonlar  averafre  nnlesa  the  Teaet^l  and/or 
•onk.  btimt,  or  In  oolUalon  wltb  another  ahlp  or  veeaot.  or  ontnaa  loa 
Interest  hereby  Inanred  he  reaannablyaivpooed  to  be  owing '-  * 
^..    __.^ . >oftheerf ' 


eotltolon  with  another  ahlp 
Inelnded,  other  than  water  or  ai 

pay  landing,  wareboualac,  forwi , , „,-,-- , 

arfrlng  fmro  tranahlpment  and  to  pay  for  any  pordoo  of  oargn  onndemnod 
dlatreaa  owing  to  perna  loaured  agafnai.  Inoludlng  rlak  nf  craft,  raft  andfor  llg. 
fron  tho  vea^  alaO  all  UtMrttea  a^  per  ooatraot  of  aCrelghtment.     Kaoh  crafty  raft 

Not  *Hld  i/nftst  coufiUrsl^ntd  bj  JOHN  M.   F/f£Y, 
In9ur»vct  Agwt.  Product  Exehangt,  Nt*  YoHr. 


being  plaoed  by  1 

itedt-  -"• " 

the  total  I 


tbla  policy  ahall,  li 


B  aaanred  for  the  time 


be  reported  to  the  oMoec? 

-    * If   the    port 

that  aeyloaa 
located  agenta  of  the 


t  andwr  Teaae)  with 


r  revolting  8tate«,  o 

lether  oocurrlng  In  ■ 

abandon  In  caae  of  btookado,  and  f 


wlae ;  and  whether  oocurrlng 


held  ooTered  agalnat  "  damage  or  loaa  reaultlng  from  faulte 

In  the  management  of  aald  veaael,"  for  which  "  the  veaael,  her 

rera"  la,  or  are,  relieved  of  reaponalbUlty  under  Section  s  of  the 
United  Stotea,  approved  13th  February,  isn,  but  nothing  In  thto 

^mlt  or  affect  any  rlgbta  which  the  company  may  have  by  aubro- 

otherwlae,  agalnat  the  owner*  of  the  aald  veaael. 
Is  hereby  nnderatood   and  agreed,  that  In  eaae  of  Loaa  or  Damage  bai 

•     -|der  thla  Certlfloaie,  li ^-^..^ .- .  -    - 

_    __    Liverpool    or    Loudou, __    ,.    _ 

the  damaged  gooda  arnve  at  other  porta.  It  la   agreed  that 

pranvptly  reported  for  artendon  to  the  nearest  located  age 

Uat  of  m  auDb  aireuu  printed  oa  the  baofc  of  this  Ortlfloate. 

bv  the  asaured  free  from  loaa  or  expense  arising  from  capture,  aclanra 

ition  or  deatniodon,  or  the  ootisequenceB  of  any  attempt  thereat,  whether 

'         bclllgereni  nadons,  or  by  goTemmenta 

J  or  lawleaa  pereona  tberem,  or  other- 

of  dlBtreM  or  otherwise.    Aiao  warranted  not  to 

Tom  aDvexpenaelaeonaeqnenoetherftof.butlnUM 

,  of  blockade  to  be  at  liberty  to  proceed  to  an  open  port  and  there  end  the  Toyago. 

alao  agreed  that  the  property  be  warranted  by  the  aaaured  free  from  any  enarge, 

damage  or  loaa,  which  may  arise  In  uonaeqnenceof  aaelzure'or  deteudon  for  or  on  at 

of  any  Ullolt  orprohf  bited  trade,  or  any  tnule  in  artlclea  contraband  of  war,  or  the 

tlou  of  any  port  regulation. 


tnvoiee  Jfo,  '     7/ 

Shipp/d  bv  NYE  &  JE^KS  GRAIN  CO.,  New 


On  Bixii-d.  S.  S. 


for  account  cund   risk  of  "TTPt^dd^ 
B/L  daUd,  OcA  >^Af'/ 
against   our  ioXe/^J*/*^  >'//'f>  ^ 


Throuih  M 


<2.JV^^, 


/ 


c» 


^' 


Insured  in  BRITISH  ^   FOREIGN  MARIXB  IffS.  CO. 


M       Documents  attached  to  draft  as  follows:  , 

//^sJf       Bills  af  Utding   i^-o^    /"^^C   -^  ^/irdj^l 


Jnsuranae    Ctrti/icai* 
/mpeclien    Certificate 


/fi/-^ 


E.  <}•  a  E. 


Msiu  York,      UeyrlijY       191*^ 

NYE  ftfieXJKS  $t^AINf«>r 


COMMERCIAL    PAPER    AND    BILLS    OF    EXCHANG 


E 


Iivsnjiij,s  (I III/      pQ}L3Si9S^:> 

("rorttun/  h>fh>yj,r.sy„f.stni„lan/  o/'t/,r  XKW'YOllKPmDrCK  KX(;iLl\(iK. 


.S'lO/iir/  , 


For  arc'/  of' 


of  his  own  or  ample  banking  facilities.  Being 
staple  articles,  in  constant  and  world  wide 
demand,  convertible  into  money  at  little 
expense  or  delay,  such  loans  are  of  the  very 
best,  and  are  readily  made  by  the  banks,  the 
only  peril  being  in  the  changing  price  of  the 
goods,  and  danger  of  deterioration. 

Banking  accommodations  are  therefore  to 
be  had  by  pledging  these  bills  of  lading  or 
elevator  receipts  with  the  bank  as  security 
for  advances.  As  a  matter  of  fact,  neither 
the  bills  nor  the  goods  are  actually  pledged 
with  the  bank,  but  possession  of  the  bill  being 
necessary  in  order  to  get  possession  of  or  to 
move  the  goods,  the  holding  of  the  bill  of 
lading  is  in  itself  perfect  security.  Inasmuch 
as  large  grain  merchants  are  receiving  consign- 
ments of  grain  constantly,  and  paying  the 
drafts  attached,  there  is  a  constant  'stream  of 
bills  passing  through  their  hands,  which  may 
be  placed  in  the  bank  to  replace  others  taken 
out  for  the  purpose  of  moving  shipments. 

There  are  a  few  large  elevator  concerns 
in  the  West  that  buy  grain  and  secure  funds 
for  cash  payment  by  selling  their  single  name 
paper  in  the  open  market.  While  the  wheat  is, 
in  the  last  analysis,  the  security,  it  is  the 
credit  of  the  borrower  that  is  the  real  element. 
These  same  concerns  also  borrow  on  ware- 
house receipt  for  the  grain,  and  on  account 
of  the  security,  obtain  cheap  rates  in  the  large 
cities  of  the  West;  but  as  between  the  buyer 
and  seller,  grain  as  a  rule  moves  on  a  cash 
basis. 

The  various  st^ps  taken  in  moving  a  ship- 
ment of  wheat  from  the  producer  in  Dakota 
to  the  consumer  in  Europe,  and  the  financial 
operations  connected  therewith  will  be  best 
understood  by  tracing  in  detail  such  a  ship- 
ment.   It  will  be  observed  that  the  draft  and 


bill  of  lading  become  separated  at  various 
points,  subsequently  coming  together,  and 
again  separating,  depending  upon  whether 
the  documents  are  used  as  collateral. 

Presuming  the  farmer  is  in  need  of  short 
time  credit  for  his  current  operations,  as  dis- 
tinguished from  long  time  credit  for  the  pur- 
pose of  buying  or  improving  land,  it  will  arise 
from  a  need  of  funds  to  plant  and  harvest  the 
crop.  He  may  buy  his  seed  of  the  local  mer- 
chant on  open  account,  or  give  notes  for  it, 
which  are  discounted  at  the  local  bank. 
In  buying  machinery,  he  gives  his  notes  to  the 
agricultural  machinery  companies,  and  these 
notes  constitute  as  important  a  form  of  two 
name  paper,  as  arises  in  the  market.  In 
paying  off  his  harvest  hands,  cash  must  be 
had,  which  is  supplied  by  the  local  bank,  and 
if  on  credit,  against  his  note  of  hand. 
'  The  crop  being  harvested  now  begins  its 
journey  to  the  place  of  ultimate  consumption. 
Upon  receipt  of  the  grain,  the  local  elevator 
will  roughly  grade  the  wheat,  issuing  its 
receipts,  which  are  paid  for  in  cash  at  the 
office. 

Assuming  the  grain  to  pass  through  several 
hands  before  reaching  its  destination,  it  will 
be  shipped  from  the  local  elevator  to  the  lake 
port,  where  it  will  be  officially  graded,  which 
grading  is  accepted  in  all  markets.  A  draft  is 
drawn  on  the  lake  port  dealer,  for  instance  at 
Duluth,  with  bill  of  lading  attached,  and  sent 
to  a  bank  at  Duluth.  The  draft  is  presented 
to  the  drawee  at  Duluth  and  paid.  If  the 
Duluth  firm  is  borrowing  on  the  shipment,  the 
bill  of  lading  will  be  security  to  the  bank  for 
the  advance.  If  the  grain  is  to  go  forward,  it 
must  pass  through  an  elevator,  and  therefore 
the  bill  of  lading  must  be  surrendered  before 
this  can  be  done.    In  order  that  the  property 


2f 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


may  not  be  out  of  the  bank's  control,  a  trust 
receipt  is  taken,  which  vests  control  in  the 
bank  while  the  transfer  is  being  made.  If  the 
grain  is  to  remain  in  storage  a  warehouse 
receipt  is  issued,  which  is  deposited  in  the 
bank  as  collateral.  But  assuming  that  the 
grain  is  to  move  to  the  seaboard,  the  trust 
receipt  is  taken  up  when  the  grain  is  on  the 
^ake  carrier,  and  lake  bill  is  issued. 

When  the  grain  leaves  the  elevator  in 
Duluth  for  Buffalo,  via  the  lakes,  the  Duluth 
firm  will  draw  on  Buffalo,  attach  the  inspec- 
tion certificate,  the  bill  of  lading,  and  insurance 
certificate  to  the  draft  and  forward  to  a  Buf- 
falo bank.  The  draft  is  paid,  bill  of  lading 
again  surrendered  for  trust  receipt,  which  in 
turn  is  replaced  by  a  rail  bill  for  New  York. 
~  When  on  board  the  car  for  New  York, 
the  trust  receipt  is  taken  up  and  draft,  rail 
bill  and  other  documents  forwarded  to  New 
York,  and  paid  by  drawee. 

From  the  railroad  car  the  grain  goes  into 
elevator,  the  bank  holding  a  trust  receipt 
while  the  grain  is  being  transferred.  As  soon 
as  the  grain  is  on  board  the  ocean  liner, 
certificate  of  loading  is  issued,  an  ocean  bill 
of  lading  drawn,  draft  on  the  European  buyer 
or  his  bank  attached,  insurance  effected,  and 
the  bill  with  the  documents  attached  becomes 
foreign  exchange  and  is  sold  in  the  foreign 
exchange  market.  Formerly  drafts  against 
grain  were  at  60  da};s  sight  on  the  buyer, 
documents  to  be  delivered  against  payment  of 
the  draft,  under  rebate  for  the  unexpired  time, 
as  explained  on  page  31  under  the  heading  of 
meat  bills.  The  same  rule  appHes  also  to 
flour  bills.  Since  1913  it  has  become  the 
practice  in  the  grain  export  trade  from  the 
Northern  parts  of  the  United  States  and  from 
Canada  to  draw  on  the  buyer  at  seven  days 
after  sight  documents  deliverable  against  pay- 
ment. Shipments  from  southern  ports  are 
usually  against  30  day  sight  drafts. 

All  drafts  on  United  Kingdom  are  subject 
to  three  days  grace;  drafts  made  for  longer 
than  three  days  after  sight  pay  the  British 
revenue  stamps  as  follows: 
Not  exceeding  ^5,  id 

Exceeding  £    5,  but  not  exceeding  ^10     2d 
"  10,     "      "  "  "    25     3d 

"  "  25,     "      "  "  "    50     6  d 

"  "  SO.     "      "  "  "    75     9  d      _ 

"  75,     "      "  "  "  100     I  shilling 

and  for  every  further  ^100  or  fractional  part  of  ^100 
an  additional  i  shilling  is  required. 

Flour  in  the  Export  Trade 

We   are   indebted   to   the   Pillsbury   Flour 
Mills   Company  of  Minneapolis  for  the  ac- 


companying documents  which  as  are  used 
for  financing  exports  of  flour.  Also  an  account 
of  the  methods  of  handling  these  intruments 
in  the  foreign  trade,  from  the  booking  of  the 
order  to  the  payment  of  the  drafts. 

"Our  foreign  customers  who  book  flour  for 
future  delivery  and  make  specified  shipping 
periods,  differ  somewhat  as  to  the  terms  of 
settlement.  For  instance,  in  Holland  where 
the  guilder  is  used  they  require  goods  shipped 
and  documents  consisting  of  bill  of  lading 
and  insurance  certificate  attached  to  draft 
drawn  at  three  days  sight.  The  drawee  in 
this  case  has  the  privilege  of  accepting  this 
draft  and  obtaining  the  documents  attached 
upon  this  acceptance,  while  in  England  where 
drafts  are  generally  drawn  in  pounds  Sterling 
for  the  English  trade  drafts  are  drawn  at 
sixty  days  sight  and  payment  of  bill  is  re- 
quired before  the  documents  are  surrendered. 
In  the  two  above  cases  we  generally  draw  on 
customers  direct,  our  correspondent  in  this 
country  having  the  privilege  of  forwarding 
the  documents  through  whatever  bank  they 
choose. 

"In  the  case  of  Scandinavian  countries  who 


Pillsbury  Floor  Mills  Company 

MiimeAPoLis.  MixN. 


Cute  MciMMfc    PiusawBv.  mmauKut 


Mmneapols,  ^^IIn- 


^^12   I9M 


iSI 


Manager 


Credit  lynmnAjg, 


Dear  Sin 


^ 


,  ^  have  drawn  on  yoo  at  /fiWETT  days  Aa  aghi  tor 


for  account  ^  (S^awfd)^  <fe  ZflW, 


-4^ 


"  iicotujmd. 


which  pieaw  hoBot.  ^ 

Aforesaid  draft  made  against  shij^ent  of  Flour  as  follows: 


BanUna-SAmerua 


-&  SLioe 


Very  truly  youn. 

PILLSBURT  FLOUR  MILLS  COMPANY 


30 


COMMERCIAL     PAPER    AND     BILLS    OF    EXCHANGE 


PON  use  VIA  CANADIAN  l*«D* 


bMTt  M  «t  l^im  Nt....    P  a€ 

National  Despatch-Great  Eastern  Line 

III  amatmmtmmm  mim  •*«•*  «»»»a^«a  mm  «*•■  ■■■■■■ 


Coanrt  ■•>.J^.S)mtjitig| 


*m  mtn  Mmacn  m  thi  Rwn 


UBCEIVSDtL JElnaea9olia»  JOmu  Kay  19th,..xai4... 

Inm SUXfi«acy.jaAUr.:Xai&.  66*    tU  Mtowini 

frtfrt  ••  evpamt  lood  ordtr.  ttetpl  «•  noiti  (etnltttt  amdtm^tltu  tl—altnU  •/ 
package  mJnm»).  markid.  numUnd.  eontigntd  amd  dtfUiud  •*  iadictttd  Ulft: 


ordsr-oC 

PllUlnin^  FXouv.jiillfi  Co^ 


PMTV  TO  M  MDfltt 


SXSE  BDIQ>BBO..(500  280#). 
JXSTB  SACKS  IXOXm 


i«oooo  xts. ■ 

*Shlpp*r'>  W»l(lit       . .  (nbjMt to  iimillii) ^.._ 

(*V.  n.  Uw  f«««lrM  AiMI  iMBlM  iiu  W  I  IBM  !•  «■«■  tf 

"MiinM>'  •!' ■•'fw«'  Mw»^>iMiv"l 

jUlsa  Xiae 


£BAnrCBD.&-]UW ;\Cartfor,  Pae.  2S47» -860  cacScs 

67  BDFE  ST.  '  « ■    o>        u      45441        250 

ir.P.  Tla  PulQth  and  9%.  Srs^t,  MUiu 

To  be  rnrried  to  Ikr  Port  (A)  ol  HontXCal ,    ()Ue«  ''M  tkrmn  bf.. 

(o  (A/  P»tI  (B)...^ OaHgOW^.SCftt^ ~ _ (vr  to  mar  Ihertio  m  $tnmtr  maymlf 

ly  grt,  viik  librrtu  lo  rail  lU  Dny  pari  or  fxirl'in  ormri  oU/trrunloiKarii  ruMlr  I ,  and  lo  br  Ikrrr  Mierrnl  in  likr  good  order  and  eoiiUHtm 
at  above  eontignrtl.  or  lo  rimtignrr'i  atxigmi.  or  lo  nnoikfrpnrrirr  on  Ihe  rtiuir  In  iletlimition  it  ronnigiird  beyond  laid  Port  (B),  »fom 

pmrmrof  immtdiatrly  on  diichani  ol  lh»  orooerlv.  ol  Ibk  lyiolil lkrrrn».  al  Ikr  rale  Irom...         MilUiaaJIOUa^  |ft«Ti,       .. 

''  Glasgow,  scot.       litXand  rate-^ghteen  (18)  St'SQ/oai'ittn}Bxil<i'*<-"nrt.t>'ronek%»dnd 

,^.,«.i,  amas  wkiuht.  md  aiia»^mt,rr^^^  fourteen  (14)  &  00/ftP  prepaid     ,,  „,»  „;/ ,(w  dtor,* 

111//  'leoraiiii,  kUIwiiI  any  aUowanee  ol  rreilU  or  iliiroanl ;  xrlllrmnil  lo  be  mnilr  im  llir  buiis  ol  I  .ihillimft  i  ffnee,  Ui  Morb. 
'■.lit  Iraurl,  3. no  llulrh  gtiildtrt;  H.HU  kroner  lo  Ihe  ilolbir.  Ihiilnl  Slolrs  gold  rnrrenr):  il  in  oll„r  'Hrrenry  Ikait  kertin  pr»vidtd 
lor.  netUemeul  ti>  be  niadt  al  tkf  rale  ol  ft. HO  to  Ikr  prwml  tlerliHii.  at  the  rurrrnt  rale  ol  rirhaH'te  ollirinliy  quoted  on  tkt  day  tk* 
ocean  ttiiinier  luterx  Ike  Outtam  Bouu  at  ilt  port  ol  ditrharije,  lur  irhirh  Imnker't  nhort-tii/bl  biltt  oh  Condon  ran  he  bougkl;  wktm 
I  Ireiijht  in  lirrpaid.-  titSti  .Uniied  Statet  gold  it  equitaleni  to  nnr  intunil  sterling. 


'•tV  tf  femtt^   iMMi*   ■Mm.d,   Il    l«  fcvrabr   Mlpulatad   lh*< 


— iw  IVtm  fef  th«  *lpp«f 


1  lin»yii<«.   akal  W   iilMlM   t»  tWa 
Mi4  br  Mm  Ilium  I9W  fclwiill  Mi4 


»  W  th*  .fMt  •!  I^»  MfvlOT  liwln  ll»U  Un  W  UMmt  i^di 


CONDITIONS 

iMliny  whUh  akaU  b*  nud«  wItkMit  Of  ip  i  iHI  nMMl.* 
.•Tm°>  •»  >b.^di  luVll  fxIMi  iM  akuvi  •.<  ^  far  III  ia_  o>  dua|to  >U>b  lh>  lUp  »  i>i«i  au  tew  ••  mOt  hi 

^         -"^  --^^*pMaMtjMf«br«aeiimdo«tbtaB«4aab.Ub**UMttef«(«. 

ly  tt*  tfrtvml  uif  diaeteis*  wMI&ufi^.  Mr  »*«■  «<  .^.^^  f  ,1^ 

ibktfb^ - 

-      Th*  UiipiMT  ud/w  .VMT  oi  tb«  pMda 
_- J ^  t. — <_.  j^(  t^  BMkilw  • 


•MTibwl  ud  TftJuad  1m>*b:  ib«t  tk»  PMki 


!iS^  .U>.  uTSiMa  i»  •klp*  w>i  u  te  M  llbav  <•  ~l~^  b^  •>•  V^  «M 


■  MBatMt^  mmtd 


miUm  a 


lb*  (oeda  apacifiad 


iMidiac  Bhariaa  on^a  toodi.     Ttia  ialaad 
Tie  tuoda  IB  *boJe  or  in  pari  far  ika 

Imgbt  asd  ehaf|«*  th»  pftmade  bO 

ffa«bl 


11*''^ 
ifll 


iX  WiT-Sj;^  WBKKKQF.  The  Agent  ntmiiw.  on  .Mo//  a/  <t«  aaid  NttiOMi  DMOMck  -  8r«Ct  BMtjff  LiMk 
•'  the  iniil  (keao  Utramnhtp  Company,  or  Or«in  SUamtr  afd  ker  twntr,  teverallt  .vd  n*l  itlnlly^  ka(k' alfv*"*  ** 
^•^B^  UiV*  oi  IxyktiO  all  ol  thif  tenor  and  dale,  on*  ol  ^kie\  Bilte  being  aeromptieked.  Ike  otkert  Ia' ttani  void 

Minneapolis  UjunP*       Slat 

May  1914  ," .......I.  go  BBTgesC ^. U^ 

..J92 —  .  "■  1  iii"ifriiriiiii  iiiTi  iiippihiiiii 


Dated 

day  al 


generally  do  their  banking  in  London,  we 
draw  at  ninety  days  sight  on  their  London 
correspondent  for  the  consignee's  account  and 
in  this  case  we  are  required  to  give  three  days 
prior  notice  to  the  London  agency  of  the 
customer  in  question  before  forwarding  the 
draft  and  documents.  This  is  to  insure  our- 
selves as  well  as  give  final  notice  to  the  cus- 
tomer that  his  credit  covering  this  particular 
shipment  has  been  established  with  his  bank 
so  that  the  acceptance  of  the  documents  will 
not  be  delayed,  because  if  the  customer  has 
not  established  credit  to  meet  same  the 
London  bank  would  cable  us  that  the  docu- 
ments have  been  refused  thus  entailing  con- 
siderable charges  and  cable  expense. 


"These  foreign  bills  of  e.xchange  we 
negotiate  through  New  York,  Chicago,  or  the 
local  markets,  whichever  gives  us  the  best 
rate." 

Meat  Bills 

Through  the  courtesy  of  Messrs.  Armour 
&  Company  of  Chicago  we  are  permitted  to 
reproduce  herewith  the  documents  used  in 
financing  their  export  trade. 

Under  the  heading  of  "Meat  Bills"  it  is 
usually  customary  to  classify  all  such  docu- 
mentary bills  as  are  drawn  against  shipments 
of  packing-house  products  to  firms  and 
individuals  abroad.  Such  bills  are  usually 
drawn  for  very  short  terms  and  in  most  cases 


31 


^j^jw^^Mii^^ 


Documenta  to  be  Surrendered 
only  upOB  PSynsntoithtstolli 

cvxliauiu'tiir 


"4 

JUL  1^,^1914  ^ 


Ourselves 


v<-<.,,^-^       ^ -- ^->^.-*^.^.^rL^    -^  ^^  i"'    /  ^*^         ^■?>   Pounds/ /o         Sterling 


London, 

England, 


m 

A/ 


j  tt  o 


I 


4e 


Sii;  ar«  to  bfe  Surt-»naort»4  to  tn,j 

v^6*^o\      Guilders 


Vv^a' 


/  <?  /  V  , 


Three  r/,rf y.j a/// >  //y// ////^///  W\x^x\  r//^ ^f/Z/fz/u/f^ !< .j/rr//// //r//'.i///f  r// 


//Ji)'//  Z- /A/  ru//?   /y         Uursclv 


•5' 


^k 


.  -^--^    ,^*^   ^/   ^"^       ^//<->-,^  Guilders,  i 

,;;rH.    F.    OSIECK,  <o  ^  v' jf^&luinj  IkirBlillsCuuttimii^  I 

Amsterdam,    ^         ^•^y^^--^-  - .    .     -,  .  ^Ac%  ^^^^^_^ 
Holland. 


L  '^<<t**Z8&|gii5HiiiiriJ 


^■iU'£ir.ai 


:if 


3-3 


If 

IS 

■a  s 


I 

U 

§1 
111 

UJ 
I. -I 


8i« 

S3  8 

III 

"11 


Marks  and  Nos. 

Plllsburys  Best 
BA  '185 


SUpBCBU  to  poRt  ftsd  pUe«s 
In  the  United  Cisgdoai  of  Gftet 
Britain  oi  Continent  of  Europe 
(efcludlni    Medltemoena    poru) 


"AU  Rieki"  clkoM  I 


Bubiect  to   F.  P.  A.  E.  C-  twns 
odIcu  othervita  eadoned  knreon. 


DUPUCATE 

No,  33736  Certificate 

of  the 

St.  Paul  Fire  and  Marine  Insurance  Co. 

ST.  PAUL,  MINNESOTA 

Minneapolis,  Minn.,  U.  S.  A.    March  11th. 191_4_ 

./<»..<>"ii:  Q„  the eleventh day  nj  March /p/_*. 

PILLSBURY  FLOUR  MILLS  CO.  caused  to  be  made  by  this  Company  on  Open 
Policy  No.  7S36,  an  endorsement  for  insurance  of  ( 228  pounds ) 


Tkt  rfWMM  l99i  •/  CrttI  BriUtm  rtfffiwV. 
Ih*l  iMt  tirtitfit  it  tUMtU  wiMn  10  i4yi 
^fttr  rttnfl  i«  tkt  UniUd  Ximgittt,  ttktrmit 


>««•(  h  tslltettd  h 


Two   Hundred  and  twenty-eipht  pomdE   3te|'l|nj| 


on 400    SffffkK    nf   Finiir 


-    a  •D 
-«~£-S- 


shipped  by   Rail   Road  'n 
tn  NftwYork.    N.    Y. 


nnliifd  at  sum  insured. 

Lake ^teamtf^  "'   inland  (^rjhiajr/j  at   and  from  Minneapolis,  Minn., 
^fd~fit%ind  thence  per  Steamer  or  Steamers  to 


«» 


Cnpgnhagan,    Dpnmarlf.  z;^ 


"    ■=     B 
■5    S    fi 


This  CertificaU  reprejtnU  <SSl  taket^  flaci  of  thi  Policy,  an. 
thr  purpose  of  collecting  any  lojf^r  claims),  as  fully  as  if  the  praperi 
this  Certificate,  and  free  from  t))y  lialfimy  for  unpaid  premiums,      o     °    O 

Lojt^f  any,  f^aitt  im  STERLING,  fo  Pillabury  FloD-  jtilla  Co. 
Kleinwar^oni  (/t^,lo  Ftnckurck  St.,  E.  C.  Lmdcn,  (If  atnMnliiH  "  <"" 
Limt  St^quarr,  E.  C.  London,  {If  amomtuint  to  ^2$  or  under),  upon  the 
CfrtifiAar,  computed  tt  the  rau  Four  ffo  Dollars,  Gold,  to  the  Sooerei(n 
fo  ptid  Jiahitity  under  this  inrurance  is  disekarted. 

Not  falid  unless  countersigned  by  Ptilsbury  Flour  Mills  Co. 
Counursifned:  ^JHHS^^^leur  Mills  Co, 


all  the  rights  of  the  Original  Polity-holder  {for 
>ered  by  a  Special  Policy  direct  to  the  holder  of 


/iaS)  or  by  IFendt  UCo.,  I 
surrender  to  them  of  this 
Pound  Strrlint,  and  when 


n_>o  -^^-^ 


32 


COMMERCIAL    PAPER    AND    BILLS    OF    EXCHANGE 


the  documents  are  surrendered  against  pay- 
ment only.  If  drawn  for  longer  periods,  they 
seldom  run  to  maturity,  but  are  retired  under 
rebate  of  interest  for  the  unexpired  time,  as 
It  is  "to  the  advantage  of  the  consignee  to 
obtain  possession  of  the  goods  as  soon  as 
possible,  owing  to  their  more  or  less  perishable 
nature.  On  account  of  this  feature  "Meat 
Bills"  are  considered  a  very  desirable  form 
of  remittance  and  command  the  very  highest 
rates  among  banks  who  deal  in  exchange. 
Of  course  a  shipment  of  meats  or  other  similar 
product  may  be  covered  by  a  draft  on  a  bank 
at  sixty  or  ninety  days  sight,  but  as  the  docu- 
ments attached  to  such  a  draft  are  always 
delivered  to  the  bank  upon  its  acceptance, 
such  a  Bill  of  Exchange  becomes  at  once  a 
"Bankers  Acceptance,"  and  may  be  redis- 
counted  and  circulated  in  the  open  discount 
rnarket  without  any  further  reference  or  rela- 
tionship to  the  documents  originally  attached, 
or  to  the  shipment  which  they  represented. 

Many  of  the  large  packers  have  their  own 
offices  and  selling  agencies  abroad  and  draw 
Bills  of  Exchange  on  them,  such  as  the  one 
reproduced  herewith.  Such  Bills  of  Exchange 
are  handled  exactly  the  same  as  if  the  shipper 
had  drawn  on  a  second  party. 

The  bank  that  purchases  the  draft  in  this 
country  sends  it  to  its  correspondent  in  the 
city  where  the  payee  is  located,  and  when 
received  there  it  is  immediately  presented 
to  the  drawee  for  acceptance.  When  the 
documents  are  deliverable  only  against  pay- 
ment, and  the  drawee  wishes  to  obtain  pos- 
session of  the  goods  at  once,  he  notifies  the 
bank  and  they  allow  him  a  rebate  of  interest 
for  the  unexpired  term  of  the  draft  at  a  rate, 
one-half  per  cent,  above  the  rate  of  discount 
allowed  on  deposits  by  the  leading  Joint  Stock 


Banks  in  London.  As 
the  interest  allowed  on 
deposits  is  I  >4%  below 
the  Bank  of  England 
discount  rate,  the  re- 
bate allowed  is  normal- 
ly one  per  cent,  below 
the  Bank  of  England 
rate,  but  it  must  not  be 
overlooked  that  4%  is 
themaximumrateof  in- 
terest allowed,  no  mat- 
ter how  high  the  Bank 
rate  rises,  hence  4  >4%  is 
the  maximum  rebate; 
this  must  be  remember- 
ed when  the  Bank  rate 
goes  above  S/^%- 


Leather  and  Leather  Paper 

The  leather  industry  of  the  United  States 
aside  from  the  manufacture  of  shoes,  comprises 
919  establishments  employing  67,100  persons, 
and  capital  to  the  amount  of  $332,726,900. 
The  materials  in  the  raw  state  cost  $248,278,900 
and  by  the  tanning  process  $79,595,200  is  added 
to  the  value.  The  wages  average  about  $39,- 
000,000  a  year.  The  shoe  industry  is  con- 
stituted of  19 1 8  establishments;  employing 
215,900  persons,  the  wage  earners  numbering 
198,297.  The  capital  employed  is  $222,324,248, 
salaries  and  wages  being  $1 17,092,1 16.  The  raw 
materials  alone  cost  $332,738,213  yearly.  The 
products  at  the  last  census  were  valued  after 
manufacturing,  at  $512,797,642.  The  leather 
supply  is  naturally  dependent  upon  the  supply 
of  animals,  and  the  quantity  of  the  latter  can 
be  known  with  considerable  exactness  any 
time  a  census  is  taken.  And  with  the  supply 
of  cattle  growing  less  and  the  population 
greater,  new  fields  must  be  opened  up  if  the 
cost  is  to  be  kept  within  bounds.  Moreover 
the  introduction  of  the  automobile  has  made 
increased  demands  upon  the  leather  supply. 

The  processes  in  the  leather  industry  are 
two,  tanning  and  finishing.  In  some  cases 
both  are  done  by  the  same  concern,  while 
others  do  but  one.  The  labor  cost  is  light, 
the  materials  according  to  the  last  census 
costing  75.7  of  the  total  value  of  the  products. 
Corporations  control  49  per  cent,  of  the 
establishments  and  76.3  per  cent,  of  the  value 
of  the  products. 

Of  the  919  establishments,  78  or  8.5  per 
cent,  manufacture  products  of  Si, 000,000  or 
over,  yearly;  but  such  concerns  supply 
48.2  per  cent,  of  the  total  value  of  the  pro- 


33 


3Htnttof 
€5^iliitunrfiTr       ARJMOU R  Mi  COIVI PAN Y 


V/,;v/^.,. /////./,'/ 


/^/ 


4  ^^^"'"'  r^^y^'^^f^^^'r^^ 

f  I  ■;      iinii>iiiii»i  I  y 


— •  ^'  y^..<:-  '^ '  ■  ^ . 


y 


^//<".  ARMOURSS  COMPANY 


'//..v../..,//////'^/ 


/^/  _ 


J^Aee  </gy5  c/tgA  ^/y/;t  y  Aa^^  .//v-//////  '^' ,/»</////^^  /.///.j ///////<///// 


'////■  //u  ,■/,//  ,/  r    //  /,j  ^'//  /.J 


il- 


sM.//^.  ARMOUR  5HB COMPANY 

r      .     ... 


agwBasata^rn'TiTmHMn  Tr~iiTVTiTrrTrnTTTCrn"-^-'riT-7mrr-^"T^^    'r^^Ttrr^'" ' 


4 

i 


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is  2^ 


m 


1« 
IS 

I 

f  8 


it  h 


1 

p 

\       s 

1                   * 

^      ; 

>4 

34 


saasKomiEm 


III' 


1^ 


illl 

'if; 

1=  IS 


'if; 


i\    i  II 

I  m 

•I  ;;3  2. 

if  ||i  i| 

i  01  N  111  H 

^  '-"'  ll  IJl  1^ 

It  IbS  1| 

i  'lit  U°4  s|i  ?l 

i    us:    iSi  js=  jl 
!  ■  S'll  P'l  i!i  ii 

|i|!  "Ill  ill  || 
sill  le|li?sl«{;^ 

ml  flUWll^ 
ISiiiillilil 

|ip|il!»ll|§|ll 


nmmumiimimmr 


MARKS  AND  NUIBEU 
BILNo.2i3 

Maxhf  aniNn. 


Z 


A^jnUiti  AmCoapmarat 


llllillllllMllB«MlMiliiiiBiiiiiiiiJWiuiiiiimiinimHi«Hii««Bm.Hi«Tlinif«imM»—i—»^gg 
$.A^/^'  MARINE   PgPART^iENT  No.kMO.    6837 

CERTIFICATE  OF  INSURANCE 

JEttta  Sttaurmtr?  Olumpang,  l|artfbrb.  fflnmt 

TALBOT.  Bino «  co..Aanm  ..         ..  ^V--   ^  .^^T  ^/ 

•»«*  Buvn  .T.  inw  rMK  JVfelK  VOWS^-L^^*^  /  7  .  /9/^ 

aiifiB  tB  to  (Unrtifg.  TAo/  on  <Ae  //'^^^^^^^^'^S^^^'*^  'A*  Gwipany 
ihsurw/    under^Polky    No.     21150  ^    ARMOUR    ^  COMPANY, 

the  sum  o^i -ry^- y^^^Z^L-^-lA^y^^i^l^^  ,-^I^ZII~  iDoflaw, 

OIL- ^    '~=Xt>-.-g^  Cy'^Z^i^ 

fkilueJ  at  sutnoMfred  per  skamer'or  deamert 

at  and  fnm.^^tU"^"^  /^.xy    A'i-Cid/^^^^:^^^^^  _  f^ 

Loss,   if  any,  payable  ^  to  ARMOluR/^^^OMPAbfV/or  order,  on  surtetdtt  of  thk 

Certificate.  /y/j         /i/'' 

Thb  CcrOficaie  rtpraatb  and  lakes  At  pJace  rf  IMPoUey,  anJ  canoeya  all  Ae  right  rf  Me  OHflnal 
Polky-HoUer  (for  iht  purpote  of  colUoing  any  lots  or  clabnsj,  as  fatty  as  if  Ok  properly  loat  cooereJ  hy  a 
special  Policy  dIreB  lo  the  holder  of  this  Certificate,  and  free  from  any  UabdUy  for  urtpald  prembims. 

Not  ralM  mimt  comliiil|iiH  k;  /UUMUD  m  toatun 


^^^^^^^^^^^^^^p^^Q^^^^^^^^^^^rara^^mi^^^^^^^mraE^^ 


famStXBBA 


wi^mwwff^ar 


FonmiDX  ut  lau  loni 


CHICAOO,  u.  s.  A.  February  17th,    1914 

INVWCB  OF         2000  P4il8    Lard 


siiiPPGo    t^.    If,    1914         KR      B^'  Union  Line 
FOB  sHiPMfiKT  PES  Dominion 


S.  S.  LINE  TO 

FOR  ACCOlMT  ANB  RISK  OF  MESSRS.        AfiUOUB  AND  COUFAmT  LTD.  , 

BRISTOL.   EtTGLAHD 


RAILROAD  TO  **•    Yollt. 

Bristol 


CIF      SALS  NO. 

BRISTOL 


By  ARMOUR  ^  COMPANY 

72         ASKK        oabl«  DATED       Feb.    10th,   1914 


(D 


72 
r  2000  Palls 


Lard 


56000  lbs 
500  cirt 


m/- 


Xess   ocean  fr«ight 
66000   lbs     @     22.500   -  |l4a.50     •    4.80 


tees  Olecomit  1^ 


ises-  0-  o 

30-18-   » 
1204-  !•  9 

M.  1281-  2-  9 


Intended   fox     S.   S.  "ENOLISHMAK"     ealliufi     Fehxuaiy   29th,    19M 

«e  have  drawn  on  you  to-day  for     C  1281-  2-  8  »t  S  days'    •Igbt,  Draft 

Ho.    2604      to  which  are  attached: 

ISVOrCB  *0R   SALK  HO.    72      for  £   1281-    2-  9 

OOVT    IHSPBCTIOH  CKRTIPICATE  HO.    355835 

AKTHA   IHSURAJJCK   CBFTIPICATB  HO.    683TJ   for     16910.00 

STAB  OillOH  LIHE  KXPORT  BILL  OF  LADIWJ  HO.   2.,' 

ZfcOB 


35 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


ducts.  Small  establishments  manufacturing 
$20,000  and  less  constituted  25.9  of  the  total 
number,  and  the  value  of  their  products  was 
but  one-half  of  i  per  cent,  of  the  total. 

The  process  of  tanning  is  simple,  being 
merely"  the  immersion  of  the  hide  into  a 
solution  for  a  stated  time,  and  drying.  The 
next  step  is  the  middleman,  who  buys  the 
leather  from,  the  tanners  and  sells  it  to  the 
manufacturers,  so  the  goods  move  from  the 
animal  to  the  tanner,  through  the  middleman 
(also  often  a  tanner)  to  the  manufacturer,  to 
the  jobber,  retailer,  and  consumer. 

Imports  of  raw  skins,  are  of  course  financed 
upon  letters  of  credit,  drawn  on  London,  as  is 
the  custom  in  all  other  import  operations.  If  the 
importer  cannot  finance  the  transaction  with 
his  own  capital  and  banking  accommodations 
the  goods  are  released  upon  a  trust  receipt. 

Terms  of  Leather  Credit 

Owing  to  the  liberal  terms  upon  which 
leather  is  sold  on  open  credit  and  the  generous 
discounts  for  cash  payment,  the  bulk  of  the 
leather  business  is  done  on  book  account.  The 
terms  for  open  credit  are:  Sole  leather,  4  per 
cent,  ten  days;  •  three  per  cent,  thirty  days; 
two  per  cent,  sixty  days,  net  ninety  days. 
Or,  to  express  it  as  obtains  in  the  trade, 
4/10,  3/30,  2/60,  net  90.  Upper  leather  is 
usually  sold  on  5/10,  4/30,  4  months  net. 
Fancy  leather  2/10,  net. 

The  consumers  of  leather  which  are  prin- 
cipally the  shoe  manufacturers,  belting  con- 
cerns, and  manufacturers  of  leather  goods, 
harness,  etc.,  particularly  the  shoe  manu- 
facturers, sell  their  single  name  paper  in  the 
open  market  and  buy  for  cash.  All  large 
tanners,  jobbers,  and  shoe  manufacturers  issue 
single  name  paper.  One  of  the  largest  paper 
brokers  in  New  York  does  not  have  receivables 
from   either  tanners,  jobbers  or  shoemakers. 

Lumber  and  Lumber  Paper 

Lumber  as  a  commodity  differs  essentially 
from  such  products  as  grain,  meat,  and  other 
perishable  products,  in  that  it  will  keep  for  a 
long  t'me  under  proper  conditions,  and  aside 
from  the  fire  hazard,  which  can  be  insured, 
is  void  of  risk,  for  prices  are  not  subject  to 
sudden  fluctuations  aiid  tend  upwards  as  the 
supply  becomes  depleted.  Lumber  is  being 
cut  and  consumed  three  times  as  fast  as  it  is 
being  grown  and  is  an  article  in  constant  and 
widespread  demand. 

The  lumber  industry  reaches  colossal  propor- 
tions, and  is  so  wide  spread  in  its  operations 
that  it  practically  covers  the  country,  being  con- 


centrated, of  course,  in  virgin  regions  where 
the  standing  timber  is  still  uncut.  No  less 
than  45,000  establishments,  large  and  small, 
are  given  over  to  the  working  of  lumber  in  va- 
rious forms,  employing  797,825  persons,  all  but 
185,000  being  in  logging  camps  and  saw  mills. 

The  capital  employed  is  $1,182,330,000, 
and  the  salaries,  wages  and  services  amount 
to  over  $735,000,000,  yearly.  The  value  of 
the  products  is  over  $1,160,644,600  to  which 
is  added  in  the  course  of  manufacture  over 
$652,429,475,  the  cost  of  materials  being 
43.8  of  the  total  value. 

The  State  of  Washington  leads,  with  value 
of  products  $89,154,000,  and  New  York 
comes  next  with  $72,529,800.  19,500  estab- 
lishments produced  less  than  $5,000  of  finished 
products;  2,446  between  one  hundred  thou- 
sand and  a  million,  and  only  72,  a  million  or 
over.  The  credit  operations  of  this  industry 
will  therefore  be  confined  largely  to  the  minor- 
ity, the  first  mentioned  dealers  working  on 
open  account.  The  above  figures,  of  course, 
do  not  include  carpenters  and  builders. 
Some  timber  owners  operate  mills  of  their 
own,  while  others  sell  to  millers  who  cut  and 
sell  to  the  trade. 

Lumber  in  storage  is  carried  by  personal 
capital,  and  is  rarely  pledged  for  bank  accom- 
modation. Trust  receipts  are  not  used,  ex- 
perienced bankers  stating  that  they  have  never 
seen  such  an  instrument  in  connection  with 
lumber  transactions.  In  making  shipments, 
where  the  lumber  must  be  transferred  from 
rail  to  boat  and  vice  versa,  the  credit  of  the 
operator  is  sufficient  to  safeguard  the  transfer 
without  the  use  of  trust  receipt  as  obtains  in 
other  lines. 

The  terms  adopted  by  the  National  Whole- 
sale Lumber  Dealers  Association  are:  The 
freight,  net  cash,  balance  by  note,  60  days 
from  date  of  invoice;  one  and  one-half  per 
cent,  discount  for  cash  within  15  days  from 
date  of  invoice.  One  per  cent,  for  cash  within 
30  days  from  date  of  invoice.  No  discount 
after  30  days.  The  New  York  terms  are  2/10, 
note  at  90  days  from  delivery  at  the  buyer's 
option.  Philadelphia  terms  are  note  60  days, 
and  Boston  terms  likewise.  The  general 
custom  is  to  pay  by  notes  as  above,  these 
going  into  the  open  market  through  brokers. 
Single  name  paper  is  issued  by  a  few  large 
concerns,  but  lumber  paper  is  mostly  two  name. 
Some  banks  wnll  not  buy  lumber  paper,  on  ac- 
count of  its  slow  moving  qualities  and  bulk. 

The  lumber  business  is  not  crowded  with 
speculators,  who  deal  on  margin,  and  the 
companies  in  the  field  are  large  and  powerful. 


36 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


The  industry  consists  of  five  classes:  The 
holders  of  the  standing  timber;  the  millers 
who  saw;  the  wholesalers  who  buy  of  the 
mills  (some  mills  have  their  own  selling 
organization,  and  the  wholesalers  often  have 
an  interest  in  the  mills);  lastly  the  retailers 
and  the  final  consumers, — carpenters,  fur- 
niture manufacturers,  contractors,  railroads, 
etc. 

Control  of  Timber 

Of  the  standing  timber  in  the  United 
States,  the  Government  owns  one-quarter; 
two  railroad  companies  and  three  lumber 
companies  one-quarter;  190  individuals  one- 
quarter,  and  the  rest  is  scattered.  Sixty- 
seven  owners  control  40  per  cent,  of  the  long 
leaf  pine,  and  in  the  Lake  States  six  owners 
control  one-half  the  Norway  pine.  In  the 
Pacific  northwest  thirty-seven  owners  control 
half  the  standing  timber,  the  average  holding 
being  fourteen  thousand  million  feet  each, 
while  three  owners  control  one-eighth  of  the 
total  supply  of  privately  owned  standing 
timber  in  the  United  States. 

Lumber  Credit 

The  lumber  industry  gives  rise  to  three 
forms  of  credit  instruments:  Timber  bonds, 
lumber  receivables  and  single  name  lumber 
paper.  Standing  timber  is  financed  by  issues 
of  timber  bonds,  supplemented  by  private 
capital,  the  former  method  covering  large 
and  expensive  tracts,  and  is  the  development 
of  the  past  decade  or  two. 

Where  there  is  immediate  prospect  of  its 
being  utilized  for  manufacture  standing  timber 
is  generally  financed  by  means  of  bond  issues; 
that  is,  where  milling  concerns  are  required 
to  borrow  for  their  operations.  These  bonds 
mature  serially,  and,  as  the  timber  is  cut,  a 
sinking  fund  of  generally  the  amount  of  the 
value  of  the  stumpage  is  deposited  with  the 
Trustee  for  the  purpose  of  meeting  the  bond 
maturities  and  expenses. 

Yard  stocks  of  lumber  at  the  mill  are 
generally  held  on  the  books  of  the  milling 


companies  as  merchandise,  and  except  in 
the  cases  of  companies  which  are  weak  finan- 
cially, are  seldom  pledged  for  loans.  In  some 
instance  however,  where  there  are  bond  issues, 
all  of  the  assets  of  the  milling  company, 
including  the  plant,  and,  of  course,  the  yard 
stocks,  are  included  under  the  terms  of  the 
mortgage. 

After  cutting  into  standard  sizes,  the  lumber 
is  sold  through  selling  agencies  of  the  timber 
companies  or  branch  offices  in  the  large  cities, 
or^  wholesale  dealers,  and  moves  from  the 
mill  to  the  wholesaler  on  bill  of  lading  with 
draft,  or  on  open  account,  usually  the  latter. 
Many  mills  sell  direct  and  eliminate  the 
wholesaler,  and  the  middleman  does  not 
play  an  important  part  in  this  industry. 

As  strictly  commercial  paper,  there  is  very 
little  single  name  lumber  paper  issued  by 
concerns  in  the  Pacific  Northwest.  In  fact 
there  are  but  one  or  two  concerns  which  have 
availed  themselves  of  the  facilities  of  the 
commercial  paper  brokers.  Strictly  speaking 
there  is  no  considerable  quantity  of  lumber 
paper,  either  single  name  paper  or  two  name 
paper,  on  the  market.  Generally  lumber 
companies  are  closely  allied  with  their  local 
banks  and  their  needs  are  taken  care  of 
through  these  connections,  or,  as  before  stated, 
by  bond  issues.  Lumber  accounts  receivable 
are  generally  considered  quite  good,  especially 
those  from  the  manufacturers  to  the  yards, 
and  even  retail  accounts  compare  favorably 
as  a  whole,  with  most  other  accounts  re- 
ceivable. 

Two  name  lumber  paper  originates  as 
follows:  A  large  New  York  concern,  for 
instance,  might  go  into  the  South  and  buy  a 
million  feet  of  lumber,  on  four  months'  time, 
giving  its  notes  as  the  lumber  is  delivered. 
It,  in  turn,  sells  to  the  consumers,  taking 
their  notes.  The  latter  are  sold  through 
brokers,  and  with  the  proceeds,  the  first  men- 
tioned notes  are  met  at  maturity.  There 
would  thus  be  two  sets  of  receivables  in 
existence  at  the  same  time,  representing  the 
same  commodities. 


The  Bank  Acceptance 


Chapter  VI 


OL  NEof  the  chief  merits  and  distinguishing 
^  features  of  the  European  Banking 
systems  lies  in  the  bank  acceptance, 
the  effect  of  which  has  been  to  standardize 
bills  of  exchange,  and  add  new  powers  and 


effectiveness  to  them  so  that  by  virtue  of  the 
credit  quality  they  become  part  of  the  circulat- 
ing medium  of  the  country. 

The  acceptance   is   not  only  the  best  but 
the  cheapest  form  of  the  credit  instrument ; 


37 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


cheapest  in  that  it  does  not  deplete  the  cash 
holdings  of  the  acceptor,  no  reserve  being  need- 
ed to  safeguard  the  risk ;  the  principal  requisite 
being  that  the  acceptor  shall  be  in  high  stand- 
ing, and  with  resources  and  record  that  will 
stamp  the  acceptance  as  of  high  quality  by  vir- 
tue of  the  power  back  of  it.  It  is  the  most 
effective  form  of  credit  in  that  such  an  in- 
strument possesses  all  the  functions  of  money 
in  discharging  indebtedness,  and  as  such 
becomes  an  integral  part  of  the  monetary 
system  of  the  country.  \ 

The  acceptance  is  most  highly  developed  in 
England,  France  and  Germany.  But  not 
until  the  establishment  of  the  Federal  Reserve 
Banks  and  the  enactment  of  the  new  New 
York  State  Banking  Law  in  April  1914,  was  the 
bank  acceptance  known  in  our  banking  practice. 
In  England  and  Germany  the  bank  acceptance 
is  the  principal  form  of  credit,  while  in  France 
the  individual  acceptance  is  the  most  common 
form.  The  distinctive  methods  that  obtain  in 
each  of  these  countries  will  be  found  in  the 
chapters  devoted  to  those  countries. 

The  Acceptance — How  Made 

The  acceptance  comes  into  being  by  the 
mere  act  of  writing  anywhere  on  an  instru- 
ment, but  preferably  across  the  face,  the  words: 

"ACCEPTED" 

November  15,  19 14 
Payable  February  16, 191 5 
Tenth  National  Bank,  New  York. 

No  particular  form  is  necessary,  and  any 
words  that  signify  an  acceptance  are  sufficient. 
"Seen,"  "O.K.,"  "Good,"  "Presented,"  or 
merely  writing  one's  name  across  the  face  of 
the  instrument  have  been  held  sufficient;  but 
the  recognized  form  is  as  above. 

It  thereby  becomes  the  promise  of  the 
acceptor  to  pay  to  the  payee  the  amount 
named,  and  is  equivalent  to  the  promise  in  a 
promissory  note. 

In  England  the  acceptance  must  be  in  writing 
across  the  face  of  the  bill.  In  this  country, 
under  the  Negotiable  Instruments  Law,  it 
need  not  be  on  the  face  of  the  bill,  but  must 
be  in  writing,  although  it  may  be  on  a  separate 
piece  of  paper,  or  it  may  be  made  by  tele- 
graph. But  under  the  statute  the  holder  is 
entitled  to  an  acceptance  on  the  bill. 

The  Theory  of  the  Acceptance 

The  mere  writing  of  the  words  "accepted" 
across  the  face  of  a  bill  over  the  name  of  an 
internationally    known    bank,    changes    the 


character  from  an  unknown  instrument  which 
would  pass  current,  if  at  all,  only  in  the 
locality  where  known  to  an  instrument  accept- 
able anywhere  in  the  banking  circles.  The 
commercial  effect  is  to  change  a  bill  of  exchange 
drawn,  it  may  be,  by  an  unknown  merchant 
in  some  little  town,  on  another,  no  better 
known,  to  the  promise  to  pay  of  a  well-known 
banking  corporation,  whose  name 'is  synony- 
mous wuth  all  that  is  good. 

The  bank  by  accepting  does  not  merely 
engage  that  the  maker  is  good  and  will  pay 
as  per  agreement,  or  that  funds  will  be  on 
deposit  to  meet  the  instrument  at  maturity, 
but  that  it  will  pay  according  to  the  tenor  of  its 
acceptance,  absolutely  and  without  condition. 

There  are,  of  course,  in  circulation,  also,  the 
acceptances  of  private  houses  no  less  well 
known,  whose  acceptance  makes  the  paper 
"prime,"  and  therefore  of  the  highest  quality. 
But  even  in  England  where  the  acceptance  has 
reached  a  high  state  of  development,  the 
number  of  such  houses  is  less  than  a  dozen. 
Then  come  the  acceptances  of  houses  in  a 
lower  stratum  of  credit,  acceptances  based  on 
merchandise,  the  quality  of  the  acceptance 
being  immaterial,  since  it  is  based  upon  the 
worth  of  the  merchandise  involved.  And 
still  lower  down,  the  acceptance  of  the  in- 
dividual upon  a  trade  bill,  representing  a 
purchase  of  goods,  and  this  by  virtue  of  the 
name  attached,  usually  three,  becomes  eligible 
for  rediscount  at  the  central  institution.  In 
France  especially,  the  latter  forms  a  very 
important  element  in  the  banking  system. 

The  banker,  by  adding  his  name  to  paper, 
supplements  the  credit  of  the  individuals  there- 
on— in  fact  supplants  their  credit  with  his 
own,  giving  to  the  public  his  credit  in  exchange 
for  theirs.  Thus  in  the  English  bank  state- 
ments will  be  found  on  the  asset  side  "Liability 
of  customers  on  acceptances"  (which  may  be 
secured  or  unsecured)  and  as  a  liability, 
"acceptances,"  which  represents  on  the  one 
hand  the  obligation  of  the  bank  to  the  holders 
of  the  paper  outstanding  and  accepted,  and  on 
the  other  the  liability  of  the  makers  to  the  bank. 

The  power  of  the  bank  to  accept  a  bill  of 
exchange  enables  it  to  sell  for  gain  the  credit 
it  possesses,  without  parting  with  a  dollar  of 
reserve.  '  It  lends  not  cash,  but  credit.  It 
holds  no  reserve  against  its  acceptances,  for 
as  they  fall  due  the  drawees  will  have  funds 
in  the  bankers'  hands  to  meet  the  obligation. 
It  is  the  drawee's  duty  to  look  out  that  a 
reserve  is  available  to  meet  his  engagements,  \ 
and  the  burden  is  shifted  from  a  few  bankers 
to  many  individuals. 


38 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


The  banker's  cash  is  therefore  held  as  a  basis 
for  cash  advances  where  such  are  necessary, 
and  to  meet  foreign  demands  which  only  the 
metal  will  satisfy.  In  the  American  market 
the  lending  of  one  hundred  millions  would 
mean  the  setting  aside  of  eighteen  millions  in 
lawful  money  or  gold,  while  in  Europe  it  in- 
volves no  cash  whatever. 

As  is  well  known,  the  common  form  of 
borrowing  in  this  country  is  by  means  of  the 
promissory  note,  and  while  it  is  the  credit 
instrument  that  is  used  most  generally  in 
commercial  transactions,  it  does  not  and  can- 
not enter  into  the  circulating  medium  of  the 
country,  because  it  carries  no  token  of 
strength. 


put  in  circulation,  per  capita  was  312  marks, 
while  in  191 2  it  was  495  marks. 

Acceptance    in   the    United   States 
Under  the  Old  Regime 

The  National  Banking  Act  did  not  prohibit 
acceptances  in  so  many  words,  but  the  courts 
have  held  that  a  National  Bank  had  no  power 
to  lend  its  credit,  and  therefore  could  not 
make  an  acceptance.  The  lack  of  the  accept- 
ance privilege  had  much  to  do  with  retarding 
the  development  of  a  discount  market  herej 

Acceptance — Under  the  Federal 

Reserve  Act 
Section    13.— "Any   Federal   reserve  bank 


Rio    dg    .Tftnpirn^        .J^nm   Iftth  ^&/ ^ 


^SfarAmu/^''^7rr^'/,^    /^i^^^^^'^ry/^/^^^^^ 


:TKi> - 


Uiine 


:/1  w/rrro/////  0/   l/c  728s 

S/B  "Byron"    /         '       ^° 


^y^vreving  shipment  of  2000  ba^g*  of^  cof 


u.  s.  A. 


By  courtesy  of  Bernhard,  Scholle  &  Co.  of  New  York  and  the  Bank  of  New  York.  National  Banking  Association 

Facsimile  of  a  Prime  Acceptance 
This  Acceptance  being  based  on  an  importation  of  goods  it  is  eligible  for  rediscount  at  a  Federal  Reserve  Bank. 


y  I  The  manner  in  which  the  accepted  bill  of 
exchange  performs  all  the  functions  of  money, 
and  becomes  a  circulating  credit,  is  well 
typified  by  the  practice  in  Germany,  where 
the  merchant  instead  of  paying  by  check  or  in 
cash,  gives  the  dealer  from  whom  he  has 
bought  goods  a  bill  of  exchange,  payable  in 
from  three  to  six  months.  The  dealer  uses 
the  customer's  bill  in  making  payment  to  his 
creditor,  and  so  on  until  it  finds  its  way  into 
a  banker's  hands.  The  bill,  therefore,  per- 
forms a  series  of  monetary  transfers,  for  the 
holders  prefer  to  pass  the  bill  on,  rather  than 
discount  it,  which  would  cost  the  discount. 
Business  men  in  Germany,  other  than  bankers, 
are  in  the  habit  of  accepting  such  bills  at  face 
value  as  cash.  The  growth  of  the  use  of  bills 
of  exchange  in  Germany  will  be  seen  from  the 
fact  that  in  1872  the  average  amount  of  bills 

*  Italics  are  the  amendments  approved  March  3,  1315. 


may  discount  acceptances  which  are  based  on 
the  importation  or  exportation  of  goods  and 
which  have  a  maturity  at  time  of  discount  of 
not'  more  than  three  months,  and  indorsed 
by  at  least  one  member  bank.  The  amount 
of  acceptances  so  discounted  shall  at  no  time 
exceed  one-half  the  paid-up  and  unimpaired 
capital  stock  and  surplus  of  the  bank  for 
which  the  rediscounts  are  made,  except  by  au- 
thority of  the  Federal  Reserve  Board,  under 
such  general  regulations  as  said  board  may 
prescribe,  but  not  to  exceed  the  capital  stock  and 
surplus  of  such  bank* 

The  aggregate  of  such  notes  and  bills  bearing 
the  signature  or  indorsement  of  any  one  person, 
company,  firm,  or  corporation  rediscounted  for 
any  one  bank  shall  at  no  time  exceed  ten  per 
centum  of  the  unimpaired  capital  and  surplus 
of  said  bank  ;  but  this  restriction  shall  not  apply 


39 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


to  the  discount  of  hills  of  exchange  drawn  in 
good  faith  against  actually  existing  values. 

"Any  member  bank  may  accept  drafts  or 
bills  of  exchange  drawn  upon  it  and  growing 
out  of  transactions  involving  the  importation 
or  exportation  of  goods  having  not  more  than 
six  months  sight  to  run;  but  no  bank  shall 
accept  such  bills  to  an  amount  equal  at  any 
time  in  the  aggregate  to  more  than  one-half  its 
paid-up  and  unimpaired  capital  stock  and 
surplus,  except  by  authority  of  the  Federal  Re- 
serve Board,  under  such  general  regulations  as 
said  hoard  may  prescribe,  but  not  to  exceed  the 
capital  stock  and  surplus  of  such  bank,  and  such 
regulations  shall  apply  to  all  hanks  alike,  regard- 
less of  the  amount  of  capital  stock  and  surplus* 


customers  and  to  issue  letters  of  credit  author- 
izing the  holders  thereof  to  draw  drafts  upon 
it  or  its  correspondents  at  sight  or  on  time, 
not  exceeding  one  year. 

The  distinction  between  the  two  lies  in  the 
fact  that  under  the  Federal  Reserve  Act, 
acceptances  can  only  arise  out  of  import  and 
export  operations;  while  under  the  New  York 
Act,  there  are  no  restrictions  as  to  the  origin 
of  the  paper.  Moreover,  the  New  York 
banks  are  not  limited  as  to  the  amount  of 
acceptances  they  may  make  in  total,  although 
they  are  not  allowed  to  loan  by  way  of  any 
extension  of  credit,  by  means  of  letters  of 
credit  or  by  acceptances,  more  than  one- 
tenth  part  of  the  capital  and  surplus,  to  any 


Ey  courtesy  of  Corn  Exchange  Bank  and  Theo.  H.  Price  of  New  York 

Facsimile  of  the  first  Acceptance  under  the  revised  banking  law  of  New  York 

Thi?  is  the  first  bank  acceptance  to  be  made  in  this  country  under  legal  sanction.     As  it  was  not  based  on  a  commercial 

transaction  it  was  secured  by  Al  collateral.     Under  the  Federal  Reserve  Act  an  acceptance  of 

this  character  would  not  be  eligible  for  rediscount  at  a  Federal  Reserve  Bank. 


Section  14. — "Any  Federal  reserve  bank 
may,  under  rules  and  regulations  prescribed  by 
the  Federal  Reserve  Board,  purchase  and  sell 
in  the  open  market,  at  home  or  abroad,  either 
from  or  to  domestic  or  foreign  banks,  firms, 
corporations,  or  individuals,  cable  transfers 
and  bankers'  acceptances  and  bills  of  exchange 
of  the  kinds  and  maturities  by  this  Act  made 
eligible  for  rediscount,  with  or  without  the 
indorsement  of  a  member  bank. 

Acceptance  Under  The  Revised 
__  Banking  Laws  of  New  York 
''  In  order  that  banks  and  trust  companies  in 
New  York  may  have  similar  powers  the  re- 
vised banking  law  of  New  York  permits  a 
bank  or  trust  company  to  accept  for  payment 
at  a  future  date,  drafts  drawn  upon  it  by  its 

*  Italics  are  the  Amendnr.ents  approved  March  3,  1P15. 


individual,  partnership,  corporation  or  unin- 
corporated association,  etc.  Banks  in  the 
Federal  Reserve  System  may  not  accept 
paper  running  longer  than  six  months,  while 
New  York  banks  may  accept  up  to  one  year./ 

There  are,  however,  three  other  forms  of 
acceptance  widely  in  vogue  in  this  country, 
neither  of  which  conforms  to  the  European 
idea  of  acceptances;  (a)  The  certification  of 
checks;  (b)  the  acceptance  of  selling  agents  of 
bills  drawn  by  their  principals;  and  (c)  the 
acceptance  of  merchants  and  others,  of  drafts 
drawn  upon  them  by  creditors,  the  same,  after 
acceptance,  being  a  warrant  to  the  bank  to 
charge  the  same  to  the  drawee's  account  and 
remit  to  the  drawer.  These  are  methods  often 
used  for  collecting  overdue  accounts. 

The  certification  of  checks,  which  plays  such 


40 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


an  important  role  in  stock  exchange  trans- 
actions, is  in  a  sense  an  acceptance,  some  banks 
using  the  term  "accepted"  instead  of  "certi- 
fied," as  is  the  ruling  custom. 

But  it  is  not  an  acceptance  in  the  true  sense 
of  the  term,  since  the  certification  acceptance 
is  against  a  deposit  of  cash,  and  is  merely  a 
formal  acknowledgement  that  the  drawer  has 
the  amount  on  deposit  and  that  the  bank  will 
hold  the  same  pending  the  receipt  of  the 
certified  item  for  payment. 

The  nearest  approach  to  an  acceptance 
(finance  bill)  in  this  country  prior  to  the  fed- 
eral reserve  law  was  the  practice  in  vogue  be- 
tween mill  owners  and  their  selling  agents. 
These  mills  draw  upon  the  agent  or  factor 
who  accepts  and  returns  the  paper,  which  is 
then  discounted  by  the  mill  in  its  local  bank. 
It  is  in  reality  an  accommodation  indorsement. 
These  acceptances  are  sometimes  sold  through 
brokers  in  the  open  market. 

The  Acceptance  in  International 
Trade 

The  present  method  of  financing  American 
imports  is  best  made  plain  by  considering  a 
typical  case  in  the  form  of  a  commercial  letter 
of  credit  which  illustrates  the  part  that  London 
has  always  played  in  all  such  international 
transactions.  The  reason  for  establishing  a 
credit  in  London  and  thereby  providing  an 
English  acceptance  was  not  because  there  were 
no  good  banks  in  the  United  States,  but 
because  they  have  heretofore  been  prohibited 
from  doing  an  acceptance  business  under 
the  National  Banking  Act,  as  construed  by 
the  Comptroller  of  the  Currency ;  and  by 
virtue  of  their  long  monopoly  of  the  field,  the 
English  banks  have  established  a  world  wide 
reputation,  and  world  wide  connections  for 
such  operations.  It  is  the  result  of  years  of 
sound  business  practices.  And  having  no 
acceptance  market  in  the  United  States  we 
have  paid  London  annually  heavy  tribute  for 
using  her  credit  facilities. 

Through  the  courtesy  of  the  National  Bank 
of  the  Republic  of  Chicago,  we  are  given 
authority  to  reproduce  herewith  a  Commercial 
Letter  of  Credit  drawn  on  the  London  City 
and  Midland  Bank  of  London,  also  the  im- 
porter's guaranty  and  application  form. 

In  this  transaction  the  London  bank  was 
notified  by  its  Chicago  correspondents  that 
this  Letter  of  Credit  had  been  opened,  and 
a  copy  was  sent  to  them  for  their  guidance. 
The  original  Letter  of  Credit  was  forwarded 
to  the  East  India  Trading  Company,  Colombo. 
Upon    receipt    of    this    Letter   of  Credit    in 


APPLICATION  FOR  COMMERCIAL  LETTER  OF  CREDIT 


To  th«  National  Bank  of  the  Repnblio 
CHICAGO.  ILUNOIS 

Please  teaoe  for  onr  aeeoant  a  Conuaereial  Letter  of  Credit 

on   London aa  «peoiiied  belowi 

Amoont    sevcn  thousand  fljLx  liundred.  pojwjds  ster^ 
In  iavor  oi.East  India  ..Trading  Coiopiftn3r.»..Lijnlt.ed...„ 
Addreea ..CaloiDho ,   Ccylon _ _ 

Drafts  to  be  at .Nlnet.y imjm  aUht. 

Shipment  of     200  t.onfl  CS^.MO.  lit)s« )  Ceylon....c.(i!C.Oftnut 

oil   during  Marcli,   1914. 
To  be  ahipped  to..2!l.e.w....Y.orJs.,....U..»....S.»....A.. 

(Chicago  or  Seaport) 

Via  ...Kew .  Y.or.k,.. ..U... ..S.......A... 

(Port  of  Arrlml) 


Drafta  mnat  be  drawn  on  or  before MarC.ll...31a.t..».....1.9..1l.4 

Shipments  mast  be  completed  on  or  before MarCh....S1.8.t.o  ...19i4_ 

Cnstom  House  Brokers WakCm.  .and..llC...L.a.y€h.X  lna....I.n5..»_ 

Dooomenta  to  be  sent  to        Wakcm  and   Mc    LaUghlin,.   I|»C-^  K.Y. 

Insnranee  etfeeted By..-.allinpera 

Were  or  Abroid)    

Special  dlreetiona  JiJCAlt.iS..t.Q....D.QTeir....SO%..ljiTQtCiA. 

.Tal.ue  ©...£..  .47/.6/0....p.er....Mnji..X«.....l.»...P.».N.e.l..Y.o 


Colombo  the  goods  were  shipped,  and  in 
accordance  with  the  instructions  contained 
therein  the  shipping  documents  required 
were  taken  to  the  bank  and  the  Bill  of  Ex- 
change negotiated,  thus  enabling  them  to 
realize  on  the  transaction  without  delay. 

The  Bill  of  Exchange  was  then  sent  by  the 
bank  in  Colombo  to  their  London  correspond- 
ent, who  in  turn  had  the  same  accepted  and 
probably  sold  in  the  London  market.  Such  a 
Bill  of  Exchange  may  have  changed  hands 
several  times  before  it  became  due,  the 
acceptor  having  no  further  interest  in  it  as 
he  knew  that  at  the  expiration  of  the  ninety 
days  the  draft  would  be  presented  to  him, 
and  he  would  charge  it  to  the  account  of  the 
American  bank  that  opened  the  credit. 

It  will  be  noted  in  the  guaranty  signed  by 
the  importer  that  the  bank  issuing  the  Letter 
of  Credit  is  amply  secured,  having  a  clear 
title  to  the  shipment  while  it  is  in  transit, 
and  full  power  to  take  possession  of  the  goods 
and  dispose  of  them  at  its  discretion  in  the 


41 


COMMERCIAL    PAPER    AND     BILLS    OF     EXCHANGE 


The  XationalIIankoitiie  Repi  j5lk 


OF    CHICAGO 

(:oM>iKit<;i-vi>  (:uKJ>iT 


N  i;mi$i:i* 


<?''/ 


/^ 


-^   ...»    ^,     ^    ,    ^     r  ■r._t^: V. . J»      •    '- —      . 

_/v  ^■/rrry////^/^    -///y/-    //^  //  ^^Z  j/?// \/ /^ ^^ /^   f^        f//^<:/7^. 


o. 


'./  ^/. 


A  /<-.>/////'// /^ /V^/     ///^ / /r //^f^, ,    ^/-^y^y /     f^,,  //I, 


yyyyy^y///'^/yi^// r//  r///e-  >wyY  «^,^'W9!B^/^,yr/^«*^^^  ////'y/yy.     , 

JiLLHULbi^^  -^'^ykr'  /r^(^%f^y/y^rf^  /y 

//u'  yy  yy/yyyyyyy/y/yjyA/j.^^y^r/^A^iiff^ia^  Oz/y^^    yyy//f\ 

//y//fy///    %  y/f  A7,^/y^^y/y  ^^  .^/r  ^^y  y^ty/y'yyyyyyyyyy'//y//yyyyy/yy 


^     ^^^A/^r^^A^'  A^y/y(y)^  rZ/yy//. 

f""  yyr//  y/yyy// yy/yy/yy  ///yj(7/'e^A//^yy€^^'eay  ty/zyy  //j/ryy^  /Ay  yyy'yy/) 


>V^  yy/y-Ayy  y'yy,^aa^i>  ^y/AyyA/VAf'y/y!jy/ryyyy'y/  ///  yyyy/////y/y/yy' 
y/'/Al  -iii^y/J^y^Ay/ yyyAA Ay  y/yyAyy  Ayyy/yyyyy/ yy/yyyy  A'''''"-^^'^^^^^'^''^'^^  yy/  Ayy  /'yyyy// 
n/^'iy//,i^.yyyy'y  yf.uAyYyy.fyy'. 

f.  A/y^yyyy/yyyy  yA/ey/yrA^flyjL^  ^^^l"!-!  . 

AAyyyyj  ■y/yu/yyyA/yy//yy 


yUcciccyUccaJY^. 


By  courtesy  of  the  National  Bank  of  the  Republic,  Chicago 

Facsimile  of  Commercial  Letter  of  Credit 


event  the  amount  of  the  draft  is  not  paid  by 
the  importer  when  due. 

In  addition  to  the  guaranty  which  is  shown 
herewith,  the  bank  usually  requires  the  im- 
porter to  sign  a  trust  receipt  when  the  goods 
arrive  in  this  country.    In  such  a  receipt  the 


im.porter  agrees  to  hold  in  trust  for  account 
and  benefit  of  the  bank,  as  its  agents,  the 
merchandise  as  specified,  with  power  to  sell 
the  same  and  in  case  of  sale  to  pay  over  to 
the  bank  the  proceeds  as  security  for  any 
sums  due  or  to  become  due  under  the  relative 


42 


COMMERCIAL     PAPER     AND     BILLS     OF     EXCHANGE 
To  the  NATIONAL  BANK  OF  THE  REPUBLIC. 


Chicago, 


Gentlemen: 


^. 


Having  received  p-om  you  Letter  of  Credit  No.    ^/^  ^  ^ 


for — ^  '^^xj  J"-    "" — ^     f  ^ ., .y ■ 

on ^^i^^J^''-^^-'^'^^. copy  of  which  is  herewith  annexed     .^Ctr-^ herrhy 

agree  to  its  terms  and  in  consideration  thereof  hind  ^^-<<y'r..a^^c^r^z>        tn  reimburse 

you  for  any  draft  or  drafts  drawn  thereunder, />^-i/^^:£^^-t^-e Jays  prior 

to  maturity  thereof,  at  the  current  rate  of  exenange  for  first-class  Bankers'  Bills.     It  is 
understood  that  the  commission  for  accepting  under- titis  credit  is  to  he     /'^  P*^  cent, 
hereby  give  you  a  specific  claim  and  lien  on  all  goods  or  merchandise 


A/ 


(and  the  proceeds  thereof)  for  which  you  may  have  paid  or  come  under  any  engagements 

under  this  credit,  and  on  all  policies  of  insurance  [which /^f^ agree  to  effect) 

on  such  goods  or  merchandise  to  an  amount  sufficient  to  cover  your  advances  or  engage' 
ments  under  this  credit,  and  on  all  bills  of  lading  given  for  same,  with  full  power  and 
authority  to  take  possession  and  dispose  of  the  same  at  discretion,,  for  your  security  or 
reimbursement,  and  to  charge  all  expenses  including  commission  for  sale  and  guarantee. 
And  T'^^       further  agree  to  give  you  any  additional  security  that  may  he  demanded. 

And /y^ further  pledge  to  you  as  security  for  any  other  indebtedness 

nf  /^"tc/Cct^^  to  you,  any  surplus  that  may  remain,  either  in  goods  or  the  proceeds 
thereof  after  providing  for  the  acceptance  under  this  credit.  We  further  authorize  you  to 
cancel  this  letter  of  credit  at  any  time  to  the  extent  it  shall  not  have  been  acted  upon  when 
notice  of  revocation  is  received  by  the  user.  This  obligation  is  to  continue  in  force  and  to 
be  applicable  to  all  transactions,  notwithstanding  any  change  in  the  individuals  composing 
the  respective  firms,  parties  to  this  contract,  or  either  of  them,  or  in  that  of  the  user  of  this 
credit,  whether  such  change  shall  arise  from  the  accession  of  one  or  more  new  partners,  or 
from  the  death  or  secession  of  any  partner  or  partners. 

Yours  respectfully, 

Mld-Wej 


Importers'  Guaranty 

Letter  of  Credit.  The  importer  also  agrees 
that  the  delivery  of  the  said  merchandise  to 
him  shall  not  operate  as  a  waiver  of  the  owner- 
ship thereof,  and  continues  the  agreement 
that  the  bank  made,  that  its  representative 
may  at  any  time  enter  any  place  where  the 
said  merchandise  is  stored  and  resume  pos- 
session thereof.  Provision  is  also  made  that 
the  goods  shall  be  insured  by  the  importer 


at  his  expense  against  loss  by  fire,  and  such 
insurance  to  be  made  in  the  name  of  the 
bank.  . 

While  new  methods  have  developed  since 
the  outbreak  of  the  European  war  for  financing 
importations  of  goods,  the  old  custom  of  estab- 
lishing credit  in  sterling,  marks,  and  other 
standards  will  continue  to  be  the  leading  form 
for  quite  some  years  to  come. 


43 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


International  Acceptance  Under 
THE  "Dollar  Credit" 

A^  The  latest  form  of  acceptance  for  use  in  the 
international  trade  is  the  acceptance  under  the 
"Dollar  Credit."  The  First  National  Bank  of 
Boston  was  the  first  member  of  the  Federal 
Reserve  Association  to  adopt  this  form  of  ac- 
ceptance. 

The  power  conferred  upon  the  members  of 
the  Federal  Reserve  Association,  authorizing 
them  to  accept  drafts  and  bills  of  exchange  in 
connection  with  the  exportation  and  importa- 
tion of  goods,  together  with  the  demoralization 
of  our  International  Exchange  Market  by  the 
European  War,  brought  about  this  new 
method  of  financing  our  International  Trade, 
through  the  medium  of  the  "Dollar  Credit," 
as  a  basis  of  International  Exchange  instead 
of  the  pound  sterling. 


conversion  of  American  dollars  into  English  or 
other  currency.  The  First  National  Bank  of 
Boston  was  the  first  member  of  the  Federal 
Reserve  Association  to  make  acceptances  under 
the  "Dollar  Credit."  The  advantages  of  this 
instrument  drawn  in  dollars  instead  of  sterling 
is  explained  by  the  bank  as  follows:  "In  the 
case  of  a  dollar  Credit,  the  invoices  for  mer- 
chandise purchased  in  dollars  will  be  covered 
by  a  draft  for  the  exact  amount  drawn  under 
a  dollar  credit.  No  conversion,  so  far  as  the 
importer  is  concerned,  is  made  either  at  the 
time  of  drawing  or  at  the  maturity  of  the 
draft  in  the  United  States!^ 

The  Advantage  of  the  European 
Acceptance 

Accepting  drafts  is  an  old  business  in  Eur- 
ope. There,  it  has  long  been  an  important 
factor  in  the  economic  life. 


^./V  /^''S^^^v"^//     '/    //' 


'^J$\ 


By  courtesy  of  the  First  National  Bank  of  Boston 

Facsimile  of  Acceptance  under  the  "Dollar  Credit" 


By  establishing  the  so-called  "Dollar  Credit" 
in  place  of  or  interchangeable  with  "Sterling 
Credits"  our  financial  relations  with  all  foreign 
countries  will  no  doubt,  be  materially  improved. 

Heretofore  the  only  method  open  to  the 
American  importer,  in  purchasing  goods  in 
foreign  countries  was  through  Letters  of  Credit 
(as  illustrated  on  a  preceding  page)  drawn  on 
London,  Paris,  BerHn  and  other  foreign  finan- 
cial centers,  which  means  the  sending  of  funds 
to  these  centers  and  thence  to  the  point  where 
the  goods  were  purchased,  to  finance  the 
transaction. 

The  "Dollar  Credit"  will  not  only  be  more 
direct,  but  less  expensive.     It  will  obviate  the 


In  the  United  States  prior  to  the  Federal 
Reserve  System,  commercial  paper  was  a  non- 
liquid  asset,  with  no  power  of  circulating  in 
the  money  market.  The  banker  bought  the 
notes  of  his  customers,  or  loaned  direct,  or 
bought  commercial  paper  of  the  brokers,  with 
no  other  thought  than  to  have  held  it  until 
maturity.     It  did  not  or  could  not  circulate] 

The  European  merchant,  instead  of  borrow- 
ing from  the  bank  direct,  by  giving  his  note 
and  receiving  credit  against  which  he  may 
check,  arranges  with  his  bank  to  accept  his 
bills  for  him,  up  to  a  certain  amount  and  for  a 
certain  time.  He  uses  the  credit  by  drawing 
his  drafts  on  the  bank  in  payment  for  goods, 


44 


COMMERCIAL    PAPER    AND     BILLS     OF     EXCHANGE 


and  these  are  accepted  by  the  bank  for  a  small 
commission.  Or,  the  merchant  may  arrange 
with  his  banker  to  accept  bills  drawn  on  him. 
When  thus  accepted  they  find  a  ready  market. 
Again,  the  merchant  in  selling  may  draw  on 
the  buyer  and  upon  the  acceptance  of  the 
latter,  sell  the  bill  to  his  bank.  The  custom 
differs  slightly  in  the  various  countries. 
V  Trade  obligations  abroad  are  not  settled 
by  means  of  checks  as  in  this  country,  or  by 
promissory  notes  or  cash,  but  by  these  accept- 
ances, and  when  so  used  are  a  perfect  means 
of  payment.  Their  importance  may  be  seen 
from  the  fact  that  such  instruments  drawn 
for  the  purpose  of  financing  the  cotton  ship- 
ments to  England  aggregate  in  a  single  season 
from  three  to  four  hundred  million  dollars. 
"^  'The  ability  of  the  London  market  to  finance 
this  huge  volume  of  transactions  without 
stringency,  or  unsettling  conditions  generally 
is  a  forceful  argument  in  favor  of  this  principle 
of  banking. 

The  London  acceptance  is  recognized  in  all 
parts  of  the  world  as  the  standard.  Many 
banks  in  London  carry  acceptances  in  their 
portfolios  for  short-time  investors,  as  the 
prl.-ie  acceptance  there  is  considered  very  de- 
sirable paper  for  this  class  of  customers!  In 
other  countries  where  drafts  are  accepted 
that  are  based  on  internal  transactions,  the 
negotiability  of  the  instrument  is  not  so  easyJ 

Safeguards 

^  [It  is  apparent  that  a  power  so  broad  as  the 
acceptance  is  potent  with  danger  if  not  under 
some  restraint.  A  bank  might  accept  to  an 
unlimited  amount,  and  therefore  become  top 
heavy  with  contingent  liability.  As  a  means 
of  making  money,  its  power  is  unlimited,  for 
nothing  is  necessary  but  to  add  a  name  and 
the  work  is  done.  No  reserve  is  necessary,  no 
quick  assets  need  be  carried  to  meet  this 
contingent  liability,  dependence  being  placed 
upon  the  borrowers  making  good  at  the  time 
of  maturity.  But  in  case  the  borrower  should 
fail,  a  serious  situation  would  arise,  the  bank 
being  compelled  to  meet  its  acceptances,  and 
would  therefore  use  its  assets  to  pay  these  at 
the  cost  of  its  other  creditors. 

There  is  no  law  to  regulate  these  practices 
in  the  European  countries;  but  a  stronger 
force  is  at  work — the  credit  standing  of  the 
bank  and  public  opinion.  One  of  the  great 
banks  of  Europe  once  got  caught  in  such  a 
condition,  and  its  acceptance  thereafter  was 
not  "prime"  and  it  has  been  a  slow  process  of 
recovery. 


In  Europe  banks  use  their  own  judgment 
and  accept  up  to  what  they  consider  the  line 
of  safety.  The  amount  of  these  acceptances 
does  not  bear  any  fixed  relation  to  the  cap- 
ital or  other  assets.  Some  banks  accept 
up  to  a  certain  proportion  of  their  capital 
while  others  accept  to  many  times  their 
capital.] 

The  Letter  of  Credit  Issued 
IN  Dollars 

The  most  modern  form  of  credit  instrument 
for  financing  importations  and  for  the  use  of 
travelers  throughout  the  world,  is  the  letter  of 
credit  issued  in  dollars. 

The  first  of  the  International  Bankers  to  is- 
sue this  instrument  was  The  Equitable  Trust 
Company  of  New  York. 

It  has  already  proved  to  be  exceedingly  sat- 
isfactory in  providing  funds  for  travelers  as 
well  as  to  importing  houses,  and  its  success 
has  been  beyond  the  expectations  of  the  issuing 
institution. 

Heretofore  an  American  importer  buying 
goods  in  any  foreign  country  would  open  a 
credit  in  Europe;  most  generally  in  London, 
in  sterling,  but  under  the  new  method  drafts 
are  drawn  in  dollars  and  cashed  without  charge 
for  commission  all  over  the  world,  and  the 
operation  of  the  credit  is  so  simple  that  better 
rates  of  exchange  are  secured  than  any  form 
of  paper  yet  offered  to  the  public. 

For  use  in  European  countries,  a  table  is 
printed  inside  the  credit,  providing  for  stated 
sums  to  be  paid  for  the  dollar  draft.  For  in- 
stance, a  draft  for  $100.00  would  bring  ;^ 20-9-2 
in  Great  Britain,  Frs.  514.35  in  France  and 
Switzerland,  Mks.  418.85  in  Germany,  Lire 
515.60  in  Italy,  Kroner  371.75  in  Scandinavian 
countries.  Guilders  246.90  in  Holland,  Kronen 
490.20  in  Austria  and  Rubles  193.25  in  Russia, 
and  other  countries  at  current  rates. 

This  credit  differs  from  similar  instruments 
issued  by  other  institutions,  inasmuch  as  it 
names  the  European  banks  on  the  face  of  the 
instrument  where  it  can  be  cashed. 

On  the  following  page  will  be  seen  a  fac- 
simile of  this  instrument. 
^^  The  issuance  of  the  Dollar  Letter  of  Credit 
has  been  a  most  important  step  toward  mak- 
ing New  York  the  financial  clearing  centre  of 
the  world. 


45 


THE  Equitable  trust  Company  of  New  York 

.1^:0000  -'  y 


« 


///  r/  f/  /f  ^y//^rr/^//'/  /<-  /////i  f///f/ /f  re. 


/' 


y/f/'//' .  v//y/  r/'^^^^2UlHL^rJ^^Z&M:td.;a^Z.4'^^  '7o^C~^''^~^-'~^'~~7 r.  S.  DOLL  A  ns 

.,'fr//y/</rff//l  *'/f  ///////'///'/f'///y  .  iy^////;  y,  ■  O^V\. 

TH?  EQUITABLE  Trust  Company  of  Noy  wh^|frcwYoRK.N.Y.,U.S.A. 

Union  Bank  of  Canada  Toronto,  Ontario  B;»rf^i*%jMMElrfciALE  Itauana  Genoa 

EpuiTABLE  Trust  Company  OF  N.Y.,         London  CRrtnT€ji1y.LiANO  Milan 

London  City  &  Midland  Bank.Ltd. London        /bi^TRi^/^&NKEN  for  Norge Christiania 

EpuiTABLE  Trust  Company  OF  N.Y,.        Paris  ^«5]$torN^sKAKREDiTAKTiEB0i.ACET  Stockholm 

Paris      ^'^■^n^iyisKE  Landmandsbank  Copenhagen 

Paris        x^^^fio^^woAMSCHE  Bankvereenicinc  Rotterdam 

Sr.C/yfls.      ^<^&reR  Bank-Verein  Vienna 

AntweR<^v     CftEDiT  Lyonnais  Madrid 

Beim^n    N^SBanque  Russo- AsiATipuE  Petrograd 
BfwyN        >/     , 

^^!i/ /)<•/////<///.'/  f'/  //frr.  Vr'/-/'. 

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//////'ff///i()  /A//J  ^/zyz'/tff/<^''7V/4^^  /'^y //  //ijr/f./'///,''//  ////■  /y/J/f/r  r/ //(/J  r,/'i'v/r///f   U.S.DOIJARS. 
'y//'^-.//'./A'-/'.//iJ/V/if/f</.)//'r  f///rf'/f/// //■  ////■  ///'ff// /A/// r.r/r/f /.)/,}  //r  ^^rfy/y/. 

,  /  /zY/Jf  .U'/'  /Af//  M/  </^<i//^)///'z  /fr/yz^f////  '/f^rr/'/z/y.if'/ff/,  /t/fr/ rft/'r^////// 
r/'j,'///aj'f:  ////'  ,tfy//////u/f  Wf/A /A^'  <"//<'  (////■>•/// /f>  /A/  _;-V'/Av'  z/.  //frAryf/u//  /,ijf//f//ff 

r/''///(//tf/fA/rf('rfAt/Af^)^f//f/-  z^'/  ^'/ft/Zf 

//<■  ff/'r. /j/////r/y//// , 

THE  EOOIJABLE  TrUSTXOMPANY  OF  New  YORK. 


CoMPTOiR  National  d'Escompte 
Credit  Lyonnais 

SCHWEIZERISCHE    KrE  DITANSTALT 

Ban^ue   d'Anvers 
Deutsche  Bank 
Dresd«er  Bank 

M,  0000  .///;  GyuzAfAA;' 


.//■', 


By  courtesy  of  the  Equitable  Trust  Company  of  Xew  York 

Facsimile  of  Letter  of  Credit  issued  in  dollars 


\  \ 


46 


Bills  of  Exchange  on  China 


Chinese  foreign  trade  with  the  United  States 
is  as  yet  in  its  infancy;  this,  and  the  fact  that 
of  all  the  Occidental  nations  America  occupies 
a  most  favorable  position  with  regard  to 
Chinese  trade,  opens  excellent  opportunities  for 
larger  intercourse  between  China  and  America. 

Our  export  to  the  great  sister  Republic 
consists  mainly  of  flour,  cotton  goods,  oil, 


ceipt  of  shipments.  Such  cheques  are  generally 
drawn  on  Hongkong  in  Hongkong  dollars 
local  currency  (see  specimen)  or  on  Shanghai 
in  Shanghai  taels. 

Exporters  of  American  goods  to  China  sell 
their  drafts  drawn  at  30,  45,  60  days  or  longer 
with  documents  attached  to  the  bank  in  this 
country,  which  has  been  authorized  by  its  cor- 


'|li«BIBW!HWtkWW»lMllllKllltBW|,WKl(BKKKM|(|lKI(li|(|(WKMIKK 


r/\  ^K^iA^^-t4^ 


/o.  /.0/s- 


/A. 


<'/'./j^y/rf  /• 


fo'SS,  ex 


^/y///f/:j .  //^f///  //, 


Courtesy  of  Redmond  &  Co.,  New  York 


Sight  Draft  on  China 


>   Jt^ 


Courtesy  of  Redmond  &  Co.,  New  York 


Chinese  Endorsement 


machinery,  ginseng,  etc.,  whereas  we  import 
rice,  silk,  tea,  bristles,  furs  and  skins. 

The  American  importer  of  Chinese  goods 
will  in  most  cases  procure  a  Letter  of  Credit 
issued  by  a  bank  in  this  country  in  U.  S.  dol- 
lars, which  the  shipper  presents  to  a  bank  in 
China  to  which  he  sells  his  documentary 
draft  in  cover  of  his  shipment. 

There  are  also  many  importers  of  Chinese 
nationality  in  this  country  who  settle  by 
remitting  cheques  to  China  on  or  before  re- 


respondents  inChinafor  account  of  the  Chinese 
buyer,  to  negotiate  such  drafts  (see  letter  of 
authorization  on  following  page).  If  no  credits 
are  opened,  American  banks  and  bankers  will 
take  such  drafts  for  collection  or  will  discount 
them  if  the  drawers  or  endorsers  are  good. 

The  Chinese  banking  system  has  no  central 
banking  institution;  the  financing  of  trade  is 
done  largely  by  foreign  banks,  which  have 
branches  in  the  important  seaports,  and  by 
many  local  Chinese  bankers. 


COMMERCIAL     PAPER     AND     BILLS    OF     EXCHANGE 
RUSSO-ASIATIC  BANK.  Hongkon,    25th jN^^^^^er    ,^  14 

Messrs Redmond  &  Co., 

New  York. 


Advice  No 5/266 


Particulars 


drafts  drawn  by 


drawn  on 

for  account  of  ■  ■  . 
for  the  sum  of  •  •  ■ 

in  all  or  revolving  . 
usance  of  drafts  ■  ■ 


with  Policy  of  Marine  In 
surance,  Bills  of  Lading 
and  Invoice  for .... 


deliverable  against  • 


In  force  till 


We  authorize  you  to  buy  on  our  account: 


A.  R.  Jones  &  Co.,  New  York. 


C.  K.  Smith,  Hongkong. 


G$2  7,ooo  (Twenty  seven  thousand  only).  The  first 
two  shipments  to  be  about  G$4,5oo  per  month  and  the 
rest  about  $2,300  till  exhausted. 

In  all. 


30  days  after  sight. 


Cotton  to  Hongkong. 


Documents  against  payment. 


31st  December,  1915. 


With  interest  at  J^. %  per  annum  added  thereto  from  date  of  drafts 

to  approximate  due  date  of  arrival  of  cover  in         ^^^  ^^^  : 


Conditions 


Courtesy  of  Redmond  &  Co.,  New  York 


Drafts  must  bear  R.A.Bk.  advice  No 5/266 ^^| 

LETTER  OF  AUTHORIZATION 


Bank  Acceptances  as  Defined  by  the 
Federal  Reserve  Board 

Chapter    VII  Circular  No.  u 

Bankers'  Acceptances 

Washington,  April  2,  1915. 

An  amendment  of  the  Federal  Reserve  Act,  approved  March  j,  igis,  made  an  alteration  in  paragraphs  j  and  5  of  section 
13,  which  are  quoted  at  length  on  pages  jg  and  40. 

"  A  CCEPTANCES"  are  dealt  with  in  the  Federal  Reserve  Act  in  two  different  sections — sections 
/-\  13  and  14,  (mentioned  in  preceding  chapter).  Section  13  deals  with  the  "acceptance"  as 
-*-  ^  one  of  the  forms  of  paper  in  the  discount  of  which  Federal  Reserve  Banks  may  engage, 
restricting  the  d'scount  of  acceptances  to  such  as  bear  the  indorsement  of  a  member  bank.  Section 
14  invests  the  Federal  Reserve  Banks,  under  regulations  to  be  prepared  by  the  Federal  Reserve 
Board,  with  power  to  engage  in  open-market  operations,  of  which  the  "banker's  acceptance" 
is  one  of  the  most  important.  _ 

Careful  study  has  led  the  Federal  Reserve  Board  to  the  conclusion  that,  at  any  rate  in  the 
first  stages,  so  far  as  practicable,  priority  should  be  given  to  operations  under  Section  13. 

"  The  acceptance  is  still  in  its  infancy  in  the  field  of  American  banking.  How  rapid  its  develop- 
ment will  be  cannot  be  foretold,  but  the  development  itself  is  certain.  Opportunity  is  given  by 
the  Federal  reserve  act  to  assist  the  movement  in  this  new  direction;  the  present  regulations  are 
to  be  regarded  as  a  first  step  and  will  be  extended  as  circumstances  and  a  reasonable  regard  for 
the  other  uses  and  needs  of  the  credit  facilities  of  the  Federal  reserve  system  may  warrant. 

"It  is  believed  that  it  would  unduly  restrict  the  development  of  the  acceptance  business  to 
keep  it  altogether  confined  within  the  provisions  of  section  13,  which  require  that  acceptances,  in 
order  to  be  eligible  for  rediscount  at  a  Federal  reserve  bank,  must  bear  the  indorsement  of  a  mem- 
ber bank;  particularly  in  view  of  the  further  fact  that  the  law  limits  the  amount  of  acceptances 
which  may  be  taken  with  the  indorsement  of  a  member  bank  to  50  per  centum  of  its  paid-in  capital 
and  surplus.  Having  found  it  necessary  to  extend  the  scope  of  dealings  in  acceptances  beyond 
these  limits,  the  board  has  exercised  the  authority  conferred  upon  it  by  section  14,  and  has  formu- 
lated regulations  covering  the  purchase  of  acceptances  without  invariably  requiring  the  indorsement 
of  a  member  bank. 

"The  acceptance  is  the  standard  form  of  paper  in  the  world  discount  market,  and  both  on 
this  account  and  because  of  its  acknowledged  liquidity  universally  commands  a  preferential  rate. 
By  reason  of  its  being  readily  marketable  it  is  widely  regarded  as  a  most  desirable  paper  in  the 
secondary  reserves  of  banks  and  will  help  to  provide  an  effective  substitute  for  the  'call  loan.' 
Its  growth,  however,  will  depend  upon  the  ability  of  the  American  market  to  adjust  its  rates 
efifectively  to  those  prevailing  in  other  markets  for  paper  of  this  class." 

Fixing  Rates 

"Recognizing  these  facts,  the  Federal  Reserve  Board  has  determined  to  allow  the  Federal 
reserve  tanks  latitude  in  fixing  rates  for  acceptances:  Federal  reserve  banks  may,  from  time  to 
time,  submit  for  the  approval  of  the  board  maximum  and  minimum  rates  within  which  they  desire 
to  be  authorized  to  deal  in  acceptances;  within  such  limits  and  subject  to  such  modifications  as 
may  be  imposed  by  the  board  Federal  reserve  banks  will  be  allowed  to  establish  the  rates  at  which 
they  will  deal  in  acceptances. 

"The  board  believes  it  to  be  in  accordance  with  the  spirit  of  the  act  to  accord  preferential 
treatment  to  acceptances  bearing  the  indorsement  of  member  banks,  offered  for  rediscount  under 
section  13 — even  to  the  point  of  allowing  lower  rates  for  such  acceptances,  inasmuch  as  under  the 
terms  of  this  section,  such  acceptances  are  available  as  collateral  against  the  issue  of  Federal  reserve 
notes;  and  the  board  will  sanction  a  slight  preferential  in  favor  of  acceptances  bearing  the  indorse- 
ment of  member  banks. 

"When  acceptances  bearing  the  indorsement  of  member  banks  are  not  obtainable  in  adequate 
amount  or  upon  satisfactory  terms,  Federal  reserve  banks  desiring  to  purchase  acceptances  should 
restrict  themselves  as  far  as  possible  to  such  acceptances  as  bear  some  other  responsible  signature 
(other  than  that  of  the  drawer  and  acceptor)  and  preferably  that  of  a  bank  or  banker." 

The  regulations  of  the  board  on  banker's  acceptance  follow: 

47 


COMMERCIAL    PAPER    AND     BILLS    OF     EXCHANGE 

Definition  Regulation  j,  April  2 

In  this  regulation  the  term  "acceptance"  is  defined  as  a  draft  or  bill  of  exchange  drawn  to 
order,  having  a  definite  maturity  and  payable  in  dollars  in  the  United  States,  the  obligation  to  pay 
which  has  been  accepted  by  an  acknowledgment  written  or  stamped  and  signed  across  the  face 
of  the  instrument  by  the  party  on  whom  it  is  drawn;  such  agreement  to  be  to  the  effect  that  the 
acceptor  will  pay  at  maturity  according  to  the  tenor  of  such  draft  or  bill  without  qualifying  conditions. 

Statutory  Requirements  Under  Sections  13  and  14 

Section  13  of  the  Federal  reserve  act  provides  that 

(a)  Any  Federal  reserve  bank  may  discount  acceptances 

(i)  Which  are  based  on  the  importation  or  exportation  of  goods;   (2)  Which  have  a  maturity 
at  time  of  discount  of  not  more  than  three  months;   and 
(3)  Which  are  indorsed  by  at  least  one  member  bank. 

(b)  The  amount  of  acceptances  so  discounted  shall  at  no  time  exceed  one-half  the  paid-up 
capital  stock  arid  surplus  of  the  bank  for  which  the  rediscounts  are  made. 

(c)  The  aggregate  of  notes  and  bills  bearing  the  signature  or  indorsement  of  any  one  person, 
company,  firm  or  corporation  rediscounted  for  any  one  bank  shall  at  no  time  exceed  ten  per  centum 
of  the  unimpaired  capital  and  surplus  of  said  bank;  but  this  restriction  shall  not  apply  to  the  dis- 
count of  bills  of  exchange  drawn  in  good  faith  against  actually  existing  values. 

Section  14  of  the  Federal  reserve  act  permits  Federal  reserve  banks,  under  regulations  to  be 
prescribed  by  the  Federal  Reserve  Board  to  purchase  and  sell  in  the  open  market  bankers'  accept- 
ances, with  or  without  the  indorsement  of  some  member  bank. 

"Eligibility" 

The  Federal  Reserve  Board  has  determined  that,  until  further  order,  to  be  eligible  for  dis- 
count under  section  13  by  Federal  reserve  banks  at  rates  to  be  established  for  bankers'  acceptances: 

(a)  Acceptances  must  comply  with  the  provisions  of  Paragraph  II  (a),  (b),  (c),  hereof; 

(b)  Acceptances  must  have  been  made  by  a  member  bank,  non-member  bank,  trust  company, 
or  by  some  private  banking  firm,  person,  company  or  corporation  engaged  in  the  business  of  accept- 
ing or  discounting.    Such  acceptances  will  hereafter  be  referred  to  as  "bankers'  "  acceptances; 

(c)  A  Banker's  acceptance  must  be  drawn  by  a  commercial,  industrial  or  agricultural  concern 
(that  is,  some  person,  firm,  company  or  corporation)  directly  connected  with  the  importation  or 
exportation  of  the  goods  involved  in  the  transaction  in  which  the  acceptance  originated,  or  by  a 
"banker."  In  the  latter  case  the  goods,  the  importation  or  exportation  of  which  is  to  be 
financed  by  the  acceptance,  must  be  clearly  specified  in  the  agreement  with  or  the  letter  of 
advice  to  the  acceptor.  The  bill  must  not  be  drawn  or  renewed  after  the  goods  have  been 
surrendered  to  the  purchaser  or  consignee. 

(d)  A  banker's  acceptance  must  bear  on  its  face,  or  be  accompanied  by  evidence  in  form  satis- 
factory to  a  Federal  reserve  bank,  that  it  originated  in  actual  bona  fide  sale  or  consignment  involving 
the  importation  or  exportation  of  goods.  Such  evidence  may  consist  of  a  certificate  on  or  accom- 
panying the  acceptance  to  the  following  effect: 

"This  acceptance  is  based  upon  a  transaction  involving  the  importation  or  exportation  of  goods. 
Reference  No. .    Name  of  acceptor ." 

(e)  Bankers'  acceptances,  other  than  those  of  member  banks,  shall  be  eligible  only  after  the 
acceptors  shall  have  agreed  in  writing  to  furnish  to  the  Federal  reserve  banks  of  the  respective 
districts,  upon  request,  information  concerning  the  nature  of  the  transactions  against  which  accep- 
tances (certified  or  bearing  evidence  under  III  (d)  hereof)  have  been  made. 

(f)  A  bill  of  exchange  accepted  by  a  "banker"  may  be  considered  as  drawn  in  good  faith 
against  "actually  existing  values,"  under  II  (c)  hereof,  when  it  is  secured  by  a  lien  on  or  by  transfer 
of  title  to  the  goods  to  be  transported;  or  in  case  of  release  of  the  goods  before  payment  of  the 
acceptance,  by  the  substitution  of  other  adequate  security. 

(g)  Except  in  so  far  as  they  may  be  secured  by  a  lien  on  or  by  transfer  of  the  title  to  the  goods 
to  be  transported,  the  bills  of  any  person,  firm,  company,  or  corporation,  drawn  on  and  accepted  by 
any  private  banking  firm,  person,  company,  or  corporation  (other  than  a  bank  or  trust  company) 
engaged  in  the  business  of  discounting  or  accepting,  and  discounted  by  a  Federal  reserve  bank, 
shall  at  no  time  exceed  in  the  aggregate  a  sum  equal  to  five  per  centum  of  the  paid-in  capital  of 
such  Federal  reserve  bank. 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 

(h)  The  aggregate  of  acceptances  of  any  private  banking  firm,  person,  company,  or  corpora- 
tion (other  than  a  bank  or  trust  company)  engaged  in  the  business  of  discounting  or  accepting, 
discounted  or  purchased  by  a  Federal  reserve  bank,  shall  at  no  time  exceed  a  sum  equal  to  twenty- 
five  per  centum  of  the  paid-in  capital  of  such  Federal  reserve  bank. 

To  be  eligible  for  purchase  by  Federal  reserve  banks,  under  section  14,  bankers'  acceptance 
must  comply  with  all  requirements  and  be  subject  to  all  limitations  hereinbefore  stated,  except 
that  they  need  not  be  indorsed  by  a  member  bank:  Provided,  however,  that  no  Federal  reserve 
bank  shall  purchase  the  acceptance  of  a  "banker"  other  than  a  member  bank  which  does  not  bear 
the  indorsement  of  a  member  bank,  unless  a  Federal  reserve  bank  has  first  secured  a  satis- 
factory statement  of  the  financial  condition  of  the  acceptor  in  form  to  be  approved  by  the 
Federal  Reserve  Board. 


Policy  as  to  Purchases 

While  it  would  appear  impracticable  to  fix  a  maximum  sum  or  percentage  up  to  which  Federal 
reserve  banks  may  invest  in  bankers'  acceptances,  both  under  section  13  and  section  14,  it  will  be 
necessary  to  watch  carefully  the  aggregate  amount  to  be  held  from  time  to  time.  In  framing  their 
policy  with  respect  to  transactions  in  acceptances,  Federal  reserve  banks  will  have  to  consider  not 
only  the  local  demands  to  be  expected  from  their  own  members  but  also  requirements  to  be  met  in 
other  districts.  The  plan  to  be  followed  must  in  each  case  adapt  itself  to  the  constantly  varying 
needs  of  the  country. 


Acceptance  by  Member  Banks  Regulation  k 

Any  member  bank  may  accept  drafts  or  bills  of  exchange  drawn  upon  it,  having  not  more  than 
six  months'  sight  to  run  and  growing  out  of  transactions  involving  the  importation  or  exportation 
of  goods  up  to  an  amount  not  exceeding  the  capital  and  surplus  of  such  bank,  provided  that — 

(i)  Every  such  bank  shall  possess  an  unimpaired  surplus  of  not  less  than  20  per  cent,  of 
its  paid-in  capital; 

(2)  Every  such  bank  shall  file  formal  application  with  the  Federal  Reserve  Bank  of  its 
district,  which  shall  report  to  the  Federal  Reserve  Board  upon  the  standing  of  such  applicant, 
stating  also  w'hether  the  business  and  banking  conditions  prevailing  in  the  district  warrant  the 
granting  of  such  applications  in  said  district. 

(3)  Every  such  applicant  shall  first  have  been  approved  by  the  Federal  Reserve  Board. 
Approval  of  any  such  application  may  be  rescinded,  and  modifications  of  this  regulation 

may  be  made,  by  the  Federal  Reserve  Board  upon  notice  of  90  days  to  the  bank  or  banks 
thereby  affected. 


Bills  of  Exchange   Drawn  Against  Sales  of  Goods  and  Accepted  by  Pur- 
chasers; Hereinafter  Referred  to  as  "Trade  Acceptances." 

Circular  No.  16 
Regulation  P. 

Washington,  July  75,  /p/j. 
Definition 

IN  THIS  regulation  the  term  "trade  acceptance"  is  defined  as  a  bill  of  exchange  of  the  character 
hereinafter  described,  drawn  to  order,  having  a  definite  maturity  and  payable  in  dollars  in  the 
United  States,  the  obligation  to  pay  which  has  been  accepted  by  an  acknowledgement,  written 
or  stamped,  and  signed,  across  the  face  of  the  instrument  by  the  company,  firm,  corporation,  or 
person  upon  whom  it  is  drawn;  such  agreement  to  be  to  the  effect  that  the  acceptor  will  pay  at 
maturity,  according  to  its  tenor,  such  draft  or  bill  without  qualifying  conditions. 

49 


COMMERCIAL     PAPER     AND     BILLS     OF     EXCHANGE 

Character  of  Paper  Eligible 

A  trade  acceptance  to  be  eligible  for  rediscount,  under  section  13,  with  a  Federal  Reserve 
Bank  at  the  rate  to  be  estabhshed  for  trade  acceptances 

(a)  Must  be  indorsed  by  a  member  bank,  accompanied  by  waiver  of  demand  notice  and 

protest. 
{b)  Must  have  a  maturity  at  the  time  of  discount  of  not  more  than  90  days. 
{c)  Must  be  accepted  by  the  purchaser  of  goods  sold  to  him  by  the  drawer  of  the  bill  and 
the  bill  must  have  been  drawn  against  indebtedness  expressly  incurred  by  the  acceptor 
in  the  purchase  of  such  goods. 

Method  of  Certifying  Eligibility 

A  trade  acceptance  must  bear  on  its  face,  or  be  accompanied  by,  evidence  in  form  satisfac- 
tory to  the  Federal  Reserve  Bank,  that  it  was  drawn  by  the  seller  of  the  goods  on  the  purchaser 
of  such  goods.  Such  evidence  may  consist  of  a  certificate  on  or  accompanying  the  acceptance,  to 
the  following  effect:  "The  obligation  of  the  acceptor  of  this  bill  arises  out  of  the  purchase  of  goods 
from  the  drawer."  Such  certificate  may  be  accepted  by  the  Federal  Reserve  Bank  as  sufl&cient 
evidence;  provided,  however,  that  the  Federal  Reserve  Bank,  in  its  discretion,  may  inquire  into 
the  exact  nature  of  the  transaction  underlying  the  acceptance. 


Definition  of  Commercial  Paper  Eligible  for  Redis- 
count With  the  Federal  Reserve  Banks 

Chapter  VIII 

Commercial  Paper 

Washington,  January  25,  igi^. 

THE  Board  has  formulated  in  Regulation  B,  hereto  annexed  (paragraph  III),  a  new  method 
for  certifying  the  eligibility  of  bills  for  rediscount.  While  banks  will  not  be  required  to  comply 
with  the  provisions  of  paragraph  III  until  after  July  15,  the  new  method  prescribed  is  made 
a  part  of  this  regulation  in  order  that  advance  notice  may  be  given  to  all  banks,  so  that  those  which 
are  equipped  to  do  so  may  begin  to  operate  under  its  provisions  as  soon  as  possible.  The  Board 
suggests,  furthermore,  that  Federal  Reserve  Banks  insist  that  the  accompanying  regulation  be 
applied  as  promptly  as  possible  to  all  so-called  "purchased  paper" — that  is,  paper  bought  through 
brokers  or  others  with  whom  the  purchasing  bank  has  no  direct  business  relations.  Where  such 
direct  connections  do  not  exist  the  requirement  that  statements,  both  as  to  business  conditions 
and  methods  of  borrowing,  be  furnished  appears  to  be  a  matter  of  prudence  and  should  not  be 
postponed.  In  such  cases  as  these,  where  borrowers'  statements  in  the  required  form  are  not 
available  until  after  the  close  of  the  business  year,  statements  for  the  previous  year  may  be 
accepted,  pending  receipt  of  new  statement  in  required  form,  even  though  such  statements  may  not 
contain  all  the  desired  data. 

While  it  has  been  thought  best  not  to  insist  upon  a  written  statement  in  the  case  of  limited 
borrowings  by  depositors,  when  ofiicers  of  member  banks,  from  their  own  personal  knowledge, 
certify  to  the  eligibility  of  the  paper  for  discount,  it  is  urged,  nevertheless,  that  member  banks 
do  their  utmost  to  accustom  their  borrowers  to  furnishing  such  statements. 

The  word  "bill,"  when  used  in  this  regulation,  shall  be  construed  to  include  notes,  drafts, 
or  bills  of  exchange,  and  the  word  "goods"  shall  be  construed  to  include  goods,  wares,  merchandise, 
or  staple  agricultural  products,  including  live  stock. 

I. 

Statutory  Requirements 

The  Federal  reserve  act  provides  that  a  bill,  other  than  an  acceptance  (see  Circular  No.  5 
and  Regulation  D,  to  be  published  shortly),  to  be  eligible  for  rediscount  by  a  member  bank  with 
a  Federal  Reserve  Bank,  must  comply  with  the  following  statutory  requirements: 

(a)  It  must  be  indorsed  by  a  member  bank,  accompanied  by  a  waiver  of  demand,  notice, 
and  protest. 

50 


^ 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 

{b)  It  must  have  a  maturity  at  the  time  of  discount  of  not  more  than  90  days,  except  as 
provided  by  Regulation  C,  accompanying  Circular  No.  4,  Series  of  1915. 

(c)  It  must  have  arisen  out  of  actual  commercial  transactions;    that  is,  be  a  bill  which  has 

been  issued  or  drawn  for  agricultural,  industrial,  or  commercial  purposes,  or  the  pro- 
ceeds of  which  have  been  or  are  to  be  used  for  such  purposes. 

(d)  It  must  not  have  been  issued  for  carrying  or  trading  in  stocks,  bonds,  or  other  invest- 

ment securities  except  bonds  and  notes  of  the  Government  of  the  United  States;   but 
the  pledge  of  goods  as  security  for  a  bill  is  not  prohibited. 

11. 

Character  of  Paper  Eligible 

The  Federal  Reserve  Board,  exercising  its  statutory  right  to  define  the  character  of  a  bill 
eligible  for  rediscount  at  a  Federal  Reserve  Bank,  has  determined: 

(a)  That  it  must  be  a  bill  the  proceeds  of  which  have  been  used  or  are  to  be  used  in  pro- 

ducing, purchasing,  carrying,  or  marketing  goods  in  one  or  more  of  the  steps  of  the 
process  of  production,  manufacture,  and  distribution ; 

(b)  That  no  bill  is  "eligible"  the  proceeds  of  which  have  been  used  or  are  to  be  used: 

(i)  For  permanent  or  fixed  investments  of  any  kind,  such  as  land,  buildings,  machin- 
ery (including  therein  additions,  alterations,  or  other  permanent  improvements, 
except  such  as  are  properly  to  be  regarded  as  costs  of  operation).  It  may  be  con- 
sidered as  sufficient  evidence  of  compliance  with  this  requirement  if  the 
borrower  shows,  by  statement  or  otherwise,  that  he  has  a  reasonable  excess  of 
quick  assets  over  his  current  liabilities  on  open  accounts,  short-term  notes,  or 
otherwise ; 

(2)  For  investments  of  a  merely  speculative  character,  whether  made  in  goods  or 
otherwise. 

III. 

Methods  of  Certifying  Eligibility 

Any  member  bank  applying  for  rediscount  of  a  bill  after  July  15,  1Q15,  must  certify  in  its 
letter  of  application,  over  the  signature  of  a  duly  authorized  officer,  that  to  the  best  of  its  knowl- 
edge and"  belief  the  bill  was  issued  for  one  of  the  purpDses  mentioned  in  the  above  paragraphs 
and  conforms  to  section  13  of  the  Federal  Reserve  Act  and  to  this  re2;ulation. 

(3)  .       . 

It  is  recommended  that  every  member  bank  maintain  a  file  which  shall  contain  original 
signed  statements  of  the  financial  condition  of  borrowers,  or  true  copies  thereof,  certified  by  a 
member  bank  or  by  a  notary  public,  designating  where  the  original  statement  is  on  file.  State- 
ments should  contain  all  the  information  essential  to  a  clear  and  correct  knowledge  of  the  bor- 
rower's credit  and  of  his  method  of  borrowing.  A  schedule  specifying  certain  information, 
which  it  is  desirable  that  such  statements  should  include,  is  hereto  appended. 

Member  banks  shall  certify  in  their  letters  of  application  for  rediscount  whether  the  paper 
offered  for  rediscount  is  depositor's  or  purchased  paper,  or  paper  rediscounted  for  other  member 
banks,  and  whether  statements  are  on  file.  When  it  does  not  appear  that  such  statements  are 
on  file,  except  as  hereinafter  provided  under  (i),  (2),  and  (3)  below,  the  Federal  Reserve  Bank 
shall  satisfy  itself  as  to  the  eligibility  of  the  paper  offered  for  rediscount,  and  member  banks  will 
be  expected  to  use  such  statement  forms,  identifying  stamps,  etc.,  as  may  be  prescribed  by  the 
respective  Federal  Reserve  Banks. 

Any  member  bank  rediscounting  with  a  Federal  Reserve  Bank  paper  acquired  from  another 
member  bank,  with  the  indorsement  of  such  member  bank,  may  accept  such  member's  certifi- 
cation regarding  the  character  of  the  paper  and  the  existence  of  the  necessary  statements. 

Statements  of  the  borrower's  financial  condition  may  be  waived  where  bills  offered  for 
rediscount  have  been  discounted  by  member  banks  for  any  of  their  depositors  in  the  following  cases: 

(i)  If  the  bill  bears  the  signatures  of  the  purchaser  and  the  seller  of  the  goods  and  presents 
prima  facie  evidence  that  it  was  issued  for  goods  actually  purchased  or  sold;   or 

(2)  If  the  aggregate  amount  of  obligations  of  such  depositor  actually  rediscounted  and 
offered  for  rediscount  does  not  exceed  $5,000,  but  in  no  event  a  sum  in  excess  of  10 

51 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 

per  centum  of  the  paid-in  capital  of  the  member  bank;    or 

(3)  If  the  bill  be  specifically  secured  by  approved  warehouse  receipts  covering  readily  mar- 
ketable staples: 

Provided,  however,  That  the  bank  shall  certify  to  these  conditions  on  the  application  blank 
in  a  manner  to  be  designated  by  the  respective  Federal  Reserve  Banks. 


APPENDIX. 

Information  Desired  in  Credit  Files  of  Member  Banks 

The  credit  files  of  member  banks,  referred  to  in  the  above  regulation,  should  include  infor- 
mation concerning  the  following  matters: 

(fl)  The  nature  of  the  business  or  occupation  of  the  borrower; 

{b)  If  an  individual,  information  as  to  his  indebtedness  and  his  financial  responsibility; 

(c)   If  a  firm  or  corporation,  a  balance  sheet  showing  quick  assets,  slow  assets,  permanent 

or  fixed  assets,   current   liabilities   and   accounts,   short-term   loans,  long-term  loans, 

capital  and  surplus; 
{d)  All  contingent  liabilities,  such  as  indorsements,  guaranties,  etc.; 

(e)   Particulars  respecting  any  mortgage  debt  and  whether  there  is  any  lien  on  current  assets; 
(/)    Such  other  information  as  may  be  necessary  to  determine  whether  the  borrower  is 

entitled  to  credit  in  the  form  of  short-term  loans. 

New  Rules  on  Agricultural  Paper 

The  following  regulation  supersedes  old  regulation  No.  5  on  six  months'  agricultural  paper. 

"The  word  'bill'  when  used  in  this  regulation  shall  be  construed  to  include  notes,  drafts 
or  bills  of  exchange. 

"  Each  Federal  Reserve  Bank  may  receive  for  discount  bills  which  have  a  maturity  of  more 
than  three  but  less  than  six  months  in  an  aggregate  amount  equal  to  a  percentage  of  its  capital 
stock  to  be  fixed  from  time  to  time  for  each  Federal  Reserve  Bank  by  the  Federal  Reserve 
Board. 

"Provided,  however,  that  such  bills  are  drawn  or  issued  for  agricultural  purposes  or  are 
based  on  live  stock;  that  is,  that  their  proceeds  have  been  used  or  are  to  be  used  for  agricul- 
tural purposes,  including  the  breeding,  raising,  fattening  or  marketing  of  live  stock;   and 

"Provided,  further,  that  such  bills  comply  in  other  respects  with  each  and  every  provision 
of  Regulation  B,  series  of  1915." 

Concerning  the  waiver  of  demand,  notice  and  protest  which  is  required  on  paper  offered 
for  discount,  the  board  notified  the  banks: 

"Attention  is  called  to  the  fact  that  the  waiver  of  demand,  notice  and  protest  by  the  bank 
procuring  the  discount  does  not  release  the  holder  of  the  note  or  bill  discounted  from  the  duty 
to  protest  such  note  or  bill  in  order  that  those  indorsers  who  have  not  executed  such  a  waiver 
may  be  held  liable. 

"If  tha. holder  should  fail  to  protest  an  indorsed  note  or  bill  at  maturity  the  Federal  Reserve 
Bank  might,  in  such  circumstances,  hold  the  member  bank  liable  on  account  of  the  waiver 
executed,  but  other  indorsers  would  be  legally  released. 

"Federal  Reserve  Banks  are,  therefore,  cautioned  to  take  all  necessary  steps  to  insure  the 
protest  of  all  maturing  notes  and  bills  which  are  in  their  possession  or  have  been  sent  for  collec- 
tion through  any  correspondent  bank  wherever  such  notes  or  bills  contain  any  indorsements  not 
accompanied  by  a  waiver  of  demand,  notice,  and  protest.  To  insure  this  the  bank  or  agent 
presenting  any  note  or  bill,  held  by  the  Federal  Reserve  Bank,  at  the  place  of  payment  at  ma- 
turity should  be  instructed,  if  the  same  is  dishonored,  to  immediately  protest  such  note  or  bill 
and  to  have  all  necessary  notices  sent  to  the  indorsers." 


52 


Bills  of  Exchange  in  England 

Chapter  IX 


BY  reason  of  the  fact  that  a  debt  due  in 
London  can  be  collected  in  gold,  and 
by  virtue  of  the  vast  aggregations  of 
capital  centered  there,  and  the  world  wide 
affiliations  of  British  trade,  London  has 
become  not  only  the  greatest  gold  market  of 
the  world,  but  the  great  clearing  house  of  all 
nations.  England's  colonial  policy,  her  free 
trade,  the  adherence  to  the  gold  standard, 
her  accumulated  wealth,  and  her  trade  rela- 
tions everywhere  have  established  her  firmly 
as  the  financial  leader  of  the  world.  The 
result  has  been  that  London  is  the  chief 
market  for  bills  from  all  over  the  world.  And 
controlling  the  instruments  of  credit,  she 
controls  the  gold  supply. 

London  bills  are  held  in  large  quantities 
on  the  continent;  sold  when  rates  are  low  and 
purchased  when  high,  thus  bringing  to  or 
taking  from  London,  the  money  used  in  her 
financial  operations. 

The  London  Money  Market 

The  notable  feature  of  the  London  money 
market  is  the  large  annual  fund  available  for 
outside  investment,  estimated  by  the  London 
Statist  to  be  about  a  billion  dollars  yearly, 
after  providing  for  home  requirements. 

The  London  money  market  is  confined  to 
an  area  less  than  a  square  mile,  the  heart  of 
which  is  the  Bank  of  England.  Then  follows 
the  eighty-two  great  joint  stock  banks,  with 
over  seven  thousand  branches  employing  over 
$680,000,000  in  capital,  and  deposits  of  over 
five  and  a  half  billions;  the  forty  Colonial 
banks  with  $750,000,000  out  on  call  or  short 
time  loans,  the  thirty  Foreign  banks,  which 
together  with  the  Colonial  banks  practically 
cover  the  world  with  their  branches,  the  great 
finance  houses  which  make  a  specialty  of 
accepting  bills  growing  out  of  imports  and 
exports,  the  stock  brokers,  about  twenty  bill 
brokers,  the  stock  exchange  and  its  affiliations ; 
the  insurance  companies,  and  lastly  the 
private  lenders,  who  in  the  aggregate  compose 
the  great  money-holding  interests  of  London 
and  what  is  ordinarily  known  as  the  London 
money  market. 

Seventeen  of  the  largest  English  banks  have 
an  average  capital  of  over  $50,000,000. 


The  Bank  of  England 

The  most  important  of  all  is  the  Bank  of 
England,  since  it  has  virtual  control  of  the 
gold  market,  and  by  its  discount  rate  and 
market  operations  can  influence  the  monetary 
affairs  of  the  world. 

The  Bank  of  England  is  a  private  corpora- 
tion with  over  10,000  stockholders.  While  it 
is  the  fiscal  agent  of  the  government,  the  latter 
has  no  control  over  its  affairs,  holds  no  stock, 
and  has  no  supervisoral  powers.  It  operates 
through  eleven  branches,  two  in  London  and 
nine  in  the  Provinces.  Its  capital  is  now  about 
$72,000,000,  reserve  (or  surplus)  $16,000,000. 

Note  Issue 

Aside  from  note  issues  of  twenty-three 
Provincial  banks,  amounting  to  only  £300,000, 
the  Bank  of  England  has  the  sole  right  of 
note  issue  in  England.  It  issues  notes  against 
securities  up  to  $18,450,000,  and  notes  to  any 
amount  against  gold  coin  or  gold  and  silver 
bullion;  but  the  silver  held  must  not  exceed 
one-quarter  of  the  gold  coin  and  bullion.  No 
silver  bullion,  however,  has  been  held  for 
many  years.  It  does  not  issue  notes  against 
commercial  paper,  as  do  the  Banks  of  Germany 
and  France,  and  an  English  note  is  equivalent 
to  a  gold  certificate.  There  is,  however, 
practically  very  little  bank  note  circulation 
in  England,  business  being  carried  on  quite 
largely  through  checks,  the  English  check 
system  being  more  highly  developed  than  that 
of  any  other  country.  The  circulation  of  the 
Bank  of  England  is  normally  about  £30,000,- 
000,  two-thirds  of  which  is  in  the  hands  of  the 
banks. 

Bank  Reserves 

It  holds  the  reserves  of  the  other  banks, 
and  utilizes  about  forty  per  cent,  of  such 
balances  in  its  loaning  operations.  Such 
reserves  are  considered  the  same  as  cash  by 
the  depositing  banks.  All  the  large  London 
banks,  and  most  of  the  Scotch  and  Irish  banks 
have  accounts  with  it.  It  carries  no  fixed 
reserve  by  law,  but  usually  has  over  forty 
per  cent,  of  its  liabilities  in  gold,  never  in  its 
history  running  below  thirty  per  cent,  until 
the  outbreak  of  the  War  in  1914,  when  the 


53 


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7/    '     /r/y  ^  f , 


^^^  oUlcio  i^L^Zt^  /l^^  y/ //uj  iiMMmJ) 


By  courtesy  of  Brown  Bros.  &  Co.,  New  York. 

STERLING  BILL  OF  EXCHANGE  (TRADE  BILL)  ON  LONDON 

These  are  always  drawn  in  duplicate  (formerly  in  triplicate)  and  sent  by  different  steamers  to  avoid  loss   in  case  of  accident. 

By  reason  of  this  precaution  an  ocean  disaster  such  as  the  loss  of  the  Titanic,  does  not  materially  affect  international 

monetary  transactions.  Note  that  this  bill  is  in  terms  substantially  the  same  as  the  bill  drawn  in  1835  by  the  same  firm. 


■  N|  NO  yz/4-  s^0n.  ./or  X  J^^ /y 


t"*!-^      y     cSis^r/^^    //>»/  a^id  M^  ^  /iie  4am6  ^ncf  anc^  c/-ci/c  im/i-cu'e/.J  Aoa  /o  me    ^rdcr  / 


Bi 
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By  courtesy  oi  Brown  Bros.  &  Co.,  New  York. 

STERLING   BILL  OF   EXCHANGE 
Drawn  in   1835.     Terminology  substantially  the  same  as  present-day  bills. 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


reserve  fell  to  14.60  on  August  7th,  rising  to 
27.52  per  cent,  at  the  end  of  October. 

Like  the  other  great  banks  of  Europe,  the 
Bank  of  England  not  only  holds  the  reserves 
of  the  nation,  but  has  a  marked  influence  on 
the  money  market.  It  accomplishes  its 
regulatory  work  by  two  mediums:  (a)  The 
bank  rate,  and  (b)  gold  purchases.  When 
occasion  requires  it  raises  its  discount  rate, 
so  that  borrowing  is  checked  and  gold  at- 
tracted from  abroad. 

Discounts 

The  Bank  of  England  discounts  all  approved 
bills  offered  by  persons  having  accounts  with 
it,  it  is  always  prepared  to  discount  for  banks 
at  the  official  rate,  and  does  a  large  business 
with  Colonial  banks  and  foreign  exchange 
bankers.  It  does  not  buy  foreign  bills,  i.e., 
bills  payable  abroad  and  does  not  purchase 
bills  in  the  open  market.  It  requires  two 
British  names  to  the  bills  it  purchases  and 
one  must  be  the  acceptor.  There  is  no  limit 
as  to  the  minimum  time,  but  the  average 
length  of  time  is  from  40  to  50  days,  and  the 
average  size  of  the  bills  is  about  £1,000. 

It  regulates  the  amount  of  discounts  to  one 
house  to  the  necessities  of  the  occasion,  and 
the  credit  of  the  borrower.  The  rate  is 
governed  by  the  names  to  the  paper,  ranging 
from  the  lowest  market  rate  to  the  bank  rate 
and  above.    It  usually  charges  the  market  rate. 

It  accepts  stock  exchange  securities  as 
collateral,  except  mining  shares.  Other  secur- 
ities are  accepted  if  their  value  can  be  ascer- 
tained.   It  has  no  call  loans. 

The  open  market  operations  of  the  banks 
and  brokers,  is  the  great  regulating  force  in 
the  London  money  market.  Any  disposition 
to  overtrade  on  the  part  of  the  commercial 
public  is  checked  by  the  banks  ceasing  to 
buy  bills.  This  of  course,  makes  the  demand 
less  active  and  rates  go  up.  The  maturing 
bills  are  allowed  to  fall  due  without  being 
renewed,  which  places  the  Bank  in  command 
of  free  money,  and  also  lessens  the  demand  for 
new  bills.  On  the  other  hand  a  demand  for 
accommodation  results  in  higher  rates.  Loans 
on  call  to  the  brokers  are  called,  and  recourse 
is  finally  had  to  the  Bank  of  England  to  buy 
bills,  which,  while  not  obligating  itself  to  buy 
all  bills  that  are  offered,  does  purchase  all 
bills  that  comply  with  its  requirements. 
Commitments  are  curtailed  as  rates  go  up, 
new  undertakings  are  abandoned,  borrowing 
slackens,  and  as  a  result  of  high  rates,  money 
is  attracted  from  abroad. 


The  whole  theory  of  the  English  system  is 
based  on  the  keeping  of  balances  with  the 
Bank  of  England  which  are  immediately  con- 
vertible into  cash,  and  the  rediscounting  of 
paper  with  the  bank  to  obtain  cash.  When 
demands  are  heavy  and  the  supply  of  funds 
low,  the  bank  raises  its  rate  and  therefore 
discourages  borrowing,  and  the  higher  rate 
attracts  gold. 

The  Bank  Rate 

The  rate  at  which  the  Bank  of  England 
will  discount  is  fixed  at  the  weekly  meeting 
of  the  Court  of  Directors  and  is  published  on 
Thursday.  The  governor  may  raise  the  rate 
in  the  meantime  if  occasion  requires,  as  was 
done  in  1907.  The  rate  is  telegraphed  to 
the  branches  every  morning. 

By  buying  all  the  gold  offered  at  a  fixed 
price,  and  by  paying  a  higher  price  when 
occasion  warrants,  it  is  able  to  control  the 
gold  market.  The  raising  of  the  rate  checks 
borrowing  and  invites  money  from  abroad. 
Interest  on  depositors'  balances  is  usually 
one  and  one-half  per  cent,  lower  than  the 
Bank  rate,  provided  that  does  not  go  above 
four  per  cent.  Market  rates  on  loans  vary 
with  the  rate  paid  on  deposits,  the  Bank  rate 
being  the  controlling  factor  in  the  discount 
market.  Usually  the  market  rate  is  below  the 
bank  rate  which  is  the  minimum. 

Just  how  the  raising  of  the  bank  rate 
affects  the  supply  of  gold,  will  be  seen  by  a 
review  of  what  happened  in  the  London 
Money  market  in  1907  and  1914.  On  August 
15,  1907  the  rate  was  raised  to  4}^  per  cent, 
at  which  figure  it  remained  until  October  31st. 
It  was  then  raised  to  5^  per  cent,  on  which 
date  the  total  bullion  held  by  the  Bank  was 
$158,000,000,  and  the  proportion  of  reserve 
to  deposits  was  39.7  per  cent.  On  November 
4th,  the  drain  of  gold  still  continuing,  the 
governor,  without  waiting  for  the  weekly 
meeting  of  Directors  raised  the  rate  to  6  per 
cent.  On  November  7th,  the  directors  raised 
the  rate  still  further  to  7  per  cent,  the  total 
bullion  having  run  down  to  $143,000,000  and 
the  proportion  of  reserves  35.2  per  cent.  Gold 
began  to  flow  into  London  and  on  December 
nth,  the  bullion  holding  stood  at  $170,000,000 
or  47  per  cent.  At  the  end  of  January,  when 
the  rate  had  fallen  to  4  per  cent.,  the  holdings 
stood  at  $192,000,000  or  56.6  per  cent.  The 
gold  came  from  twenty-four  countries,  and  if 
the  7  per  cent,  rate  had  not  been  effective, 
it  would,  according  to  the  Governor,  have 
been  raised  to  10  per  cent.,  if  necessary;  which 


55 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


rate  would  have  been  sufficient  to  bring  gold 
out  of  the  earth. 

For  a  few  days  in  the  early  part  of  August, 
1914,  the  Bank  of  England  rate  was  10  per 
cent.,  but  did  not  remain  at  that  figure  long, 
being  reduced  to  5  per  cent,  by  August  15th, 
at  which  figure  it  still  remains  at  this  writing. 

Character  of  Bills  in  London 
Market 

There  are  two  main  classes  of  bills  in  the 
London  market:  (a)  The  trade  bill,  which 
liquidates  a  commercial  transaction.  Tech- 
nically a  trade  bill  is  one  drawn  by  one  mer- 
chant on  another.  Thus  A  sells  to  B  a  bill  of 
goods,  and  draws  on  him.  He  accepts  the 
paper,  and  returns  the  bill  to  the  seller  who 


higher  for  trade  bills  than  for  bank  bills. 
The  amount  of  paper  discounted  by  the 
several  houses  is  closely  followed  by  the  London 
discount  market,  and  when  a  firm  is  over- 
extending  its  credit,  the  rates  are  raised  as  a 
check.  A  house  overdrawing  its  credit  will 
find  its  bills  selling  below  the  market  and  take 
notice  that  the  London  market  thinks  it  has 
stretched  its  credit  a  little  too  far. 

Other    Influences    in    jkE  -London 
Market. 

The  English  banks  ace  fortunately  free 
from  special  legislation yfn  their  behalf,  and 
are  governed  largely  bv  tradition  and  public 
opinion.  They  are  dl\2f^  unto  themselves. 
Any   number   of   branches   may   be   opened. 


;« 


tiff. 


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By  courtesy  of  Brown  Bros.  &  Co.,  New  York. 


BANKERS'  CH 
(General  form.     For  Britisf/^miires,  &c.) 


discounts  the  same  with  his  banker,  or  in  the 
open  market.  A  "bank  bill,"  while  usually 
drawn  to  liquidate  a  commercial  transaction, 
is  accepted  by  a  bank,  and  therefore  becomes 
of  higher  quality  than  the  acceptance  of  a 
merchant  unless  in  very  high  standing. 

(b)  Finance  bills.  These  may  represent 
exchange  transactions,  or  for  the  purpose  of 
carrying  stocks  of  goods  or  securities,  or  in 
anticipation  of  public  loans,  or  merely  fo^ 
accommodation.  When  properly  accepted 
all  but  the  last  are  rediscounted  by  the  Bank 
of  England,  but  the  accommodation  bill,  if 
known  to  be  such  is  not  favored.  Any  bill 
that  is  accepted  by  a  bank  or  banker  or  mer- 
chant in  first  class  standing  is  a  "prime  bill" 
and  obtains  the  lowest  rates,  the  rates  rising 
as  the  quality  of  the  bill  becomes  poorer.  The 
discount   rate   is   usually   one-half  per   cent. 


Broth  ers  s.  Co 


ley  may  make  advances  of  any  kind.  The 
ivesjtment^  are  not  restricted  and  reserves 
lay  be  kept  in  any  place  and  in  any  form  and 
'manner  th;at  they  see  fit.  Moreover,  the 
English  bahk  uses  its  reserves  when  necessary. 
The  Restrictions  in  force  pertain  to  bank  notes 
only  and  (not  to  banking  operations.  In 
place  of  lelgislation  they  have  a  strong  public 
opiniAn,  traditions,  and  unwritten  laws  that 
have  creatjled  the  highest  standard  of  excellence 
in  banking  conduct. 

The  I  general  practice  of  these  banks  is  to 
emplo)\  their  surplus  funds  in  the  purchase  of 
prime  bills  through  the  bill  brokers.  These 
bill  brokers  buy  paper  with  their  own  capital 
and  also  borrow  from  the  banks  for  such  pur- 
poses and  sell  to  the  banks.  The  banks  buy 
large  quantities  of  paper  direct,  it  being 
estimated  that  over  two  and  a  quarter  billion 


56 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


dollars  is  thus  employed  in  the  bill  market. 
The  bill  brokers  go  all  over  the  country  offering 
to  discount  the  paper  of  good  houses,  knowing 
they  can  get  it  discounted  at  the  Bank  of 
England  at  the  bank  rate,  and  therefore 
operate  on  a  small  margin  of  commission. 

Call  money  does  not  represent  stock  ex- 
change transactions  as  does  our  call  market, 
but  loans  largely  on  account  of  bills  maturing 
from  day  to  day. 

The  practice  of  the  English  banks  is  to 
make  advances  only  on  security.  Nor  do  the 
banks  favor  long  time  bills  for  home  cus- 
tomers, preferring  to  take  care  of  their  own 
people  by  cash  advances.    They  favor  out-of- 


town  customers  on  long  bills.  The  great  joint 
stock  banks  as  a  rule  accept  only  against 
collateral,  while  other  banks  and  bankers  make 
accepting  their  exclusive  business. 

The  manner  of  financing  an  acceptance 
against  a  lodgment  of  securities  is  simple.  A 
customer,  for  instance  in  London,  wants 
credit  in  China  or  India.  He  deposits  security 
with  the  bank,  and  gets  his  letter  of  credit. 
The  seller  then  draws  on  the  bank  and  the 
bank  accepts  the  draft  when  presented.  Some 
banks  have  never  borrowed  from  the  Bank  of 
England  in  any  form,  and  some  do  not  re- 
discount in  the  open  market,  seeing  every 
transaction  through  to  the  end. 


Commercial  Paper  in  Canada 

Chapter  X 


NOWHERE  in  the  world,  not  even  in 
France,  does  the  banking  system  re- 
spond more  perfectly  to  the  needs  of 
the  people  than  in  Canada.  In  the  granting 
of  credit  as  well  as  in  note  issues,  the  Canadian 
system  serves  every  legitimate  demand,  ex- 
pands and  contracts  as  the  needs  require,  and 
fully  protects  the  banks  while  adequately 
serving  the  commercial  and  industrial  inter- 
ests of  the  country. 

The  banks  have  perfect  control  of  the  credit 
situation  by  reason  of  the  fact  that  there  are 
but  twenty-four  chartered  banks  in  the  Domin- 
ion, with  branches,  covering  the  entire  country. 
The  banking  and  credit  system  is  therefore 
under  the  surveillance  of  a  few  large  and 
powerful  and  well  managed  institutions,  headed 
by  trained  bankers.  Through  the  branch 
system  they  are  able  to  feel  the  pulse  of  every 
part  of  the  country,  and  to  get  accurate  and 
first-hand  information  regarding  any  bor- 
rower. The  credit  facilities  of  the  country 
like  the  bank  note  issues,  follow  where  the 
need  exists,  and  the  situation  is  always  under 
control.  It  is  the  case  of  a  few  men  working 
together  against  many  individuals  working 
alone. 

By  virtue  of  the  size  of  these  banks,  a  line 
of  credit  may  be  extended  to  one  borrower  by 
one  bank,  in  such  an  amount  at  times  that 
would  seem  unsafe;  but  the  secret  lies  in  the 
fact  that  a  firm  cannot  borrow  indiscriminately 
in  the  market;  it  must  deal  with  one  bank  or 
at  most  two,  and  by  reason  of  the  close 
intimacy  established,  the  banker  knows  fully 
the  risk,  and  can  safely  make  loans  that,  as 


one  banker  puts  it,  ''would  make  the  hair  of  a 
banker  across  the  border  stand  on  end." 

Commercial  paper  does  not  enter  the 
Canadian  system  as  a  foundation  of  note 
issues,  the  Dominion  notes  being  based  on 
gold  and  securities,  and  the  bank  notes  on  the 
general  assets  of  the  banks,  against  which 
they  are  a  first  lien. 

The  Bankers'  Lien 

A  peculiar  security  enters  bank  credit  in 
Canada,  whereby  the  lending  bank  becomes 
in  a  sense  a  silent  partner  of  the  concern.  It 
possesses  a  lien  on  not  only  the  goods  pledged 
but  upon  all  substitutes  therefor.  A  bank 
may  lend  upon  raw  material  and  have  its  lien 
follow  through  all  the  processes  of  manu- 
facture, and  have  the  same  rights  as  it  would 
acquire  under  a  warehouse  receipt. 

By  the  operation  of  law  and  upon  signing 
a  note  with  certain  provisions  a  bank  may 
lend  money  to  a  firm  and  become  practically 
owner  of  all  the  goods  in  the  concern.  The 
borrower  has  the  right  to  buy  and  sell,  but 
the  lien  exists.  In  the  event  that  it  becomes 
necessary,  the  bank '  may  take  immediate 
possession  of  the  stock.  In  fact  the  bank's 
lien  is  superior  to  that  of  the  vendor,  if  the 
goods  are  pledged  as  security  or  the  loan  is 
upon  warehouse  receipt,  unless  the  claim  is 
known  to  the  bank  when  the  risk  is  assumed. 

By  the  operation  of  this  law,  a  large  part 
of  the  commercial  paper  is  secured  by  what  is 
practically  title  to  the  goods  in  warehouses, 
factories  and  other  places.  Merchandise  is 
therefore  the  actual  collateral  to  the  loans, 


57 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


and  with  the  general  credit  of  the  borrower 
forms  an  ideal  basis  of  values.  Thus  in 
moving  the  grain  crops  the  banks  are  per- 
fectly secured.  The  Canadian  law  assumes 
that  if  the  bank  finances  the  business  it  should 
have  a  claim  on  the  assets  as  they  come  into 
and  go  out  of  the  business.  By  faiUng  the 
goods  ipso  facto  become  the  property  of  the 
bank.  The  bankers  therefore  not  only  can, 
but  do  keep  close  touch  with  the  borrowers' 
interests.  If  he  attempts  to  borrow  at  an- 
other bank  his  banker  knows  it,  and  cuts  off 
his  credit.  Just  the  amount  of  paper  out- 
standing at  any  time  can  be  accurately  known 
and  manipulation  of  credit  is  quite  impossible. 
Complete  statements  are  required  at  the 
beginning  of  each  year,  and  a  line  of  credit 
is  granted,  based  thereon.  If  he  needs  more 
credit  he  may  have  it  upon  proving  the  need 
and  showing  the  cause.  But  he  must  not 
attempt  to  borrow  in  the  market  and  at  his 
own  bank  at  the  same  time.  His  bank  will 
take  care  of  him  if  he  is  worthy,  and  to  deal 
otherwise  is  to  be  placed  upon  the  "  black  list." 

^^  Canadian  Commercial  Paper 

There  is  no  considerable  amount  of  paper 
in  the  Canadian  market.  The  bill  broker  has 
no  field.  Merchants  and  manufacturers  do 
not  draw  upon  their  customers.  Credit  takes 
the  form  of  book  accounts  or  promissory  notes. 

These  notes  are  discounted  by  the  banks. 
Book  accounts  are  not  pledged  except  under 
extraordinary  conditions.  The  borrowing  of 
a  large  firm  takes  two  forms:  (a)  on  single 
name  firm  paper  deposited  with  the  bank; 
and  this  is  limited.  Then  on  (b)  its  receivables 
or  trade  paper  discounted.  The  bank  is  able 
therefore  to  keep  check  upon  both  the  dis- 
counting firm  and  the  makers. 

In  some  lines  drafts  are  drawn  by  the  seller 
upon  the  buyer,  running  from  30  to  120  days. 


These  are  discounted  and  collected  by  the 
bank.  The  drafts  are  forwarded  through  a 
branch  for  collection,  and  after  acceptance 
are  held  until  maturity.  This  is  two  name  paper. 

Farmers'  Paper 

Inasmuch  as  farming  is  one  of  the  leading 
industries  of  the  Dominion,  farmers'  loans  are 
an  important  element  in  the  credit  scheme. 
Mortgages  are  not  taken  by  the  chartered 
banks,  but  loans  are  made  on  the  character 
of  the  borrower.  Sometimes  a  neighbor  will 
endorse,  but  farmers'  paper  constitutes  an 
important  part  of  the  assets  of  some  banks 
and  is  highly  regarded.  Checking  accounts 
are  freely  used  and  by  reason  of  the  numerous 
branches  are  available  to  all. 

The  heaviest  strain  upon  the  Canadian 
banks  comes  in  the  fall  when  the  crops  are 
to  be  moved.  Each  buyer  of  grain  or  cattle 
arranges  with  his  bank  at  the  opening  of  the 
season  as  to  the  amount  of  credit  he  may  use, 
and  draws  on  the  bank  as  purchases  are  made, 
and  warehouse  receipts  are  forwarded  as 
collateral  security. 

Call  Loans 

Next  to  current  loans  in  Canada,  the  most 
important  item  among  the  assets  of  the 
Canadian  banks  is  call  loans,  particularly  in 
the  New  York  call  market.  These  loans  are 
considered  as  part  of  their  reserve,  the  leading 
Canadian  banks  maintaining  branches  in  New 
York  for  representation  purposes.  The  loans 
on  call  or  short  time  loans  outside  of  Canada 
on  September  30,  1914  was  $89,500,000. 

Rediscounts  are  a  negligible  quantity,  the 
loans  to  other  banks  including  bills  discounted 
on  the  above  date  being  merely  nominal, 
$128,000,  while  no  loans  from  other  banks 
were  reported.  Acceptances  under  letters  of 
credit  amounted  to  $13,719,000. 


Commercial  Paper  in  France 

Chapter  XI 


THE  wonderful  development  and  wide- 
spread use  of  bills  of  exchange  in  France 
is  due  in  a  large  measure  to  the  liberal 
policy  pursued  by  the  Bank  of  France  in  rela- 
tion to  the  discount  of  such  paper.  Together 
with  gold  and  silver.  Commercial  Paper  forms 
the  basis  of  the  note  issue,  so  that  commercial 
paper  of  a  certain  quality  is  interchangeable 
with  bank  notes. 
The  French  system  is  over  a  century  old. 


the  duty  of  building  up  and  protecting  the 
gold  reserve  being  the  particular  function  of 
the  Bank  of  France;  and  during  its  long  career 
it  has  never  ceased  to  control  French  credit 
with  rare  foresight  and  steadiness,  and  to 
maintain  adequate  metallic  holdings  at  all 
times. 

The  Bank  of  France  is  a  privately  owned 
corporation,  the  capital  of  $36,500,000  all 
being  held  by  the  public,  the  average  number 


58 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


of  shares  being  but  <,}4,  and  one-third  the 
number  of  shares  is  held  by  persons  holding 
one  share. 

It  is  the  fiscal  agent  of  the  Government,  but 
there  is  no  governmental  inspection,  the 
Minister  of  Finance  simply  having  the  right 
to  ask  for  information  whenever  he  so  elects. 
No  part  of  the  profits  goes  to  the  State,  but  a 
yearly  tax  is  paid,  based  on  the  level  of  the 
discount  rate  and  the  circulation.  The  mini- 
mum tax  is  $400,000,  and  in  191 2  it  amounted 
to  $1,750,000. 

The  Bank  opens  accounts  with  any  one 
known  to  it,  with  a  minimum  of  five  hundred 
francs.  After  the  account  is  opened  the 
depositor  may  deposit  as  low  as  five  francs. 
The  Bank  collects  bills  of  exchange,  receives 


value  of  more  than  four  thousand  million 
dollars.  In  the  Paris  offices  a  little  more  than 
one-half  of  all  the  paper  discounted  was  for 
sums  averaging  less  than  $20,  and  the  average 
time  to  run  of  all  the  paper  discounted  in 
1913  was  thirty  days.  The  minimum  amount 
of  a  bill  accepted  for  discount  at  the  Bank  of 
France  must  be  one  dollar.  Bills,  commercial 
and  agricultural  warrants  of  fixed  maturity, 
which  have  not  over  three  months  to  run  and 
bearing  three  signatures,  two  of  which  are  of 
parties  domiciled  in  France  and  known  to  be 
solvent,  are  freely  accepted.  It  discounts 
bills  payable  in  any  place  where  it  has  a 
branch,  or  where  it  undertakes  to  collect 
bills. 

Bills  with   two   signatures   are   acceptable, 


y/.. 


00/0 


y/^//  ■ .  v^//'^^^:^^^£^.44^^^^ 


39  Boulevard  Haussmann,  .S*A Sa-'i^t 


*  JmxZ-  JiUl^^^L^i^^uA<pC 


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i^Qfr\l\iFl>l    I        Per  Pro  Brown  Brothers  a  Co. 


Duplicate  unpaid. 


By  courtesy  of  Brown  Bros.  &  Co..  New  York.  BANKERS'  CHEQUE 

(French  form.    Note,  cheque  must  be  dated  in  words.) 


deposits  of  securities,  jewels,  loans  on  col- 
lateral, issues  letters  of  credit,  transfers  money, 
purchases  and  sells  securities  for  its  customers, 
pays  the  interest  on  the  government  debt, 
receives  subscriptions  to  government  security 
offerings,  buys  and  sells  bullion,  discounts 
bills  and  issues  notes. 


f^. 


Discounts 

With  its  583  branches  open  to  all,  it  covers 
all  France,  and  does  the  same  general  line  of 
business  at  the  branches  as  at  the  head  office. 
The  most  helpful  feature  of  its  operations  lies 
in  the  fact  that  it  discounts  for  any  one  who 
has  obtained  the  right  by  opening  ac- 
count with  it.  During  1913  the  Bank  of 
France  handled  more  than  thirty  million  bills, 
drafts,  warrants,  and  other  pieces  of  commer- 
cial  paper,    representing    an    aggregate    face 


if  in  lieu  of  the  third  signature,  securities  of 
the  class  admitted  for  loans  are  deposited. 
Warehouse  receipts  are  also  received  as 
collateral. 

By  reason  of  its  large  gold  reserve,  its 
liberal  discount  policy,  its  branches,  and  its 
right  to  pay  in  either  gold  or  silver,  and  the 
universal  use  of  its  facilities  on  the  part  of 
the  public,  the  Bank  of  France  has  become 
the  ideal  central  institution,  and  one  of  the 
greatest  banks  in  the  world. 

It  was  once  a  bank  of  banks;  but  since  it 
has  spread  its  activities  throughout  the  country 
and  lowered  the  minimum  amount  admitted 
for  discount  to  five  francs,  and  received 
deposits  from  all  who  would  use  its  good 
offices,  it  has  dealt  more  largely  with  in- 
dividuals than  with  banks.  In  each  of  the 
branches  of  the  Bank  of  France,  there  is  a 


59 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


discount  committee  conversant  with  the 
standing  of  borrowers,  and  on  their  advice 
bills  are  admitted  to  discount.  Once  the 
credit  standing  of  the  borrower  is  determined, 
he  is  entitled  to  discount  without  a  new 
investigation. 

France  is  a  land  of  the  middle  classes.  Out 
of  38,000,000  taxable  inhabitants,  not  more 
than  from  500,000  to  800,000  enjoy  an  income 
of  more  than  $1,000  a  year.  Stability, 
security,  and  cheap  money  is  what  a  republic 
of  small  capitalists  require,  and  under  the 
broad  and  liberal  policy  of  the  Bank  of  France, 
the  people  get  all  three.  France  is  less  affected 
by  panics  than  any  other  country.  Every- 
body saves,  and  everybody  uses  the  bank. 

It  has  been  estimated  that  the  investments 
of  France  outside  the  country  are  over 
30,000,000,000  francs,  making  France  creditor 
to  an  annual  income  of  over  a  billion  francs 
a  year. 

The  Bank  of  France  is  constantly  extending 
its  department  for  the  purchase  and  sale  of 
securities  in  order  to  safeguard  the  public  from 
excess  of  speculation.  All  banks  endeavor  to 
have  securities  for  sale  that  their  customers 
will  want.  A  forty  or  fifty  million  franc  issue 
will  sometimes  be  taken  in  a  few  days. 

Stability  of  the  French 
Discount  Market 

The  wonderful  stability  of  the  French  dis- 
count market  may  be  appreciated  by  the  fact 
that  from  1870  to  1907,  a  period  of  thirty-seven 
years,  the  rate  changed  but  41  times  against 
273  times  in  the  Bank  of  England.  From 
1890  to  1908  it  changed  only  17  times  against 
114  times  for  the  Bank  of  England.  And  for 
the  fifteen  years  between  1898  and  191 2  the 
average  rate  was  3.8,  against  4.50  in  Germany. 
The  highest  rate  in  the  period  was  4.50  per  cent, 
in  1899,  and  since  1900  it  has  never  exceeded 
4  per  cent,  until  the  outbreak  of  hostilities  in 
Europe  last  year,  when  the  rate  was  6  per 
cent,  for  discounts  and  7  per  cent,  for  loans. 
But  by  October  24  the  rate  was  5  per  cent. 

Commercial   Paper   in   Relation   to 

Note  Issue 
The  Bank  of  France  regulates  the  currency 
for  the  whole  country  and  any  bank  needing 
cash  may  present  its  paper  and  receive  bills 
in  return.  The  need  for  cash  by  the  banking 
institutions  is  met  first  by  drawing  down 
their  reserves  and  then  by  rediscounting  the 
paper  at  the  Bank.  To  protect  the  gold 
supply  the  Bank  has  the  right  to  pay  in 
either  gold  or  silver  and  by  paying  out  the 


latter  and  holding  the  former,  gold  is  really 
placed  at  a  premium,  which  brings  the  metal 
from  abroad. 

There  is  nothing  in  the  law  requiring  it  to 
hold  a  certain  proportion  of  metal  against  its 
notes,  the  requirement  being  that  it  shall  so 
apportion  the  coin  to  notes  that  the  Bank  can 
at  no  time  be  exposed  to  danger  of  delaying 
payment  of  its  obligations;  but  as  a  matter  of 
policy  it  maintains  a  large  gold  reserve,  at 
times  running  as  high  as  73  per  cent.  It  can 
issue  notes  only  against  cash  or  commercial 
paper,  and  every  note  is  therefore  based  upon 
either  the  metal  or  short  time  commercial 
paper,  or  both. 

The  note  issue  is  influenced  largely  by  the 
discount  operations.  The  amount  of  bills 
presented  for  discount  depends  upon  business 
requirements,  and  the  note  issues  expand  and 
contract  with  the  demands  of  the  commercial 
interests.  The  bills  presented,  therefore,  reg- 
ulate, the  amount  of  outstanding  notes  and 
circulation  and  discounts  closely  follow  each 
other  in  volume. 

On  account  of  this  feature,  the  liquid  assets 
of  the  banks  of  France  consist  of  cash  and 
bills  discounted,  the  latter  being  quickly  con- 
verted into  cash  by  presenting  to  the  Bank 
of  France. 

Wherever  therefore,  a  demand  for  money 
arises,  the  bank  will  meet  it  by  discounting  the 
paper  offered  from  that  section,  giving  in 
return  the  kind  of  money  asked  forJ 

In  transferring  funds,  the  bank  utilizes  its 
branch  system.  If  a  payment  is  to  be  made 
in  one  section  of  the  country  by  a  bank  in 
another,  bills  may  be  presented  to  the  Central 
Bank  for  rediscount,  with  instructions  to  make 
the  payment  at  the  place  designated,  which 
in  a  measure  answers  the  same  purpose  as  the 
Giro  system  in  Germany. 

The  rate  for  loans  as  distinguished  from 
discounts  is  generally  half  of  one  per  cent, 
above  the  discount  rate;  here  as  in  Germany 
there  being  a  distinction  in  favor  of  commer- 
cial paper. 

Other  Banks  in  France 

The  great  financial  institutions  of  France 
are  eight  in  number,  the  four  leading  being, 
the  Credit  Lyonnais,  the  Comptoir  National 
D'Escompte  de  Paris,  the  Societe  Generale  and 
the  Credit  Industriel  et  Commercial  which 
have  played  an  important  part  in  distributing 
credit.  Through  their  numerous  agencies, 
their  attractive  conduct  of  business,  their  ^ 
courtesy  and  attention,  they  have  gradually 
taught  the  people  new  habits  of  thrift,  through 


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COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


the  medium  of  investment  and  confidence  in 
investment  securities,  so  that  he  who  yesterday 
hoarded  in  a  stocking,  now  buys  a  bond  or 
deposits  in  a  bank. 

These  banks  buy  all  the  paper  they  can  get, 
turning  to  bonds  only  when  paper  is  scarce. 
The  joint  stock  banks  lend  on  all  classes  of 
security,  but  the  Bank  of  France  lends  only 
on  French  Government  bonds,  bonds  of  French 
Railways,  and  certain  securities  issued  by 
departments,  communes  and  municipalities. 
There  is  nothing  in  the  law  to  restrict  their 
operations.  No  legal  reserve  is  required,  and 
the  aim  of  the  French  banks  is  always  to  keep 
a  large  amount  of  bills  in  their  portfolios  that 
the  Bank  of  France  will  rediscount,  which  to 
all  intents  and  purposes  act  as  cash,  and  gives 
the  banks  at  the  same  time  the  benefit  of 
the  interest  earned.  About  70  per  cent,  of 
the  paper  discounted  by  the  Bank  of  France 
bears  bank  endorsements.  It  never  purchases 
paper  in  the  market. 

When  commercial  paper  can  be  immediately 
discounted  at  the  Bank  of  France  up  to  any 
amount,  it  is  needless  to  say  that  the  banks 
do  not  hoard  cash.  They  lend  freely.  The 
composition  of  the  bank's  portfolio  is  a  better 
test  of  its  strength  than  the  amount  of  its 
cash  holdings. 

The  government  does  not  examine  the  French 
banks  or  control  their  operations  in  any  way. 

The  private  banks  lend  largely  on  two-name 
paper,  and  by  adding  their  own  indorsement 
make  it  three-name  paper  eligible  for  redis- 
count  at   the   central   bank.     The   Bank    of 


France  advances  on  two-name  paper  with 
collateral,  and  the  signatures  need  not  be  of 
banks,  for  the  Bank  encourages  direct  discount 
operations.  The  private  banks  also  discount 
each  other's  acceptances.  They  pay  interest 
on  practically  all  deposits,  but  at  a  nominal 
rate.  The  commission  for  accepting  is  a 
quarter  of  one  per  cent,  for  three  months; 
sometimes  as  low  as  three-sixteenths.  '  There 
is  no  competition  between  the  bank  of  France 
and  other  banks,  for  they  do  not  do  the  same 
kind  of  business. 

The  banks  use  large  sums  on  the  Paris 
Bourse,  in  operations  called  "reports"  which 
are  purchases  of  securities  for  cash  and  a  sale 
on  account,  simultaneously  through  a  broker. 
The  difference  between  the  cost  and  the  selling 
price  for  future  delivery  covers  the  interest 
for  carrying  and  the  profit  to  the  bank. 
Securities  are  also  purchased  on  the  curb. 

Checks  are  not  in  use  to  any  great  extent  in 
France,  bank  notes  and  coin  being  used  quite 
entirely. 

Inasmuch  as  the  Bank  of  France  discounts 
for  any  one,  to  any  amount,  at  any  time,  paper 
having  three  names,  and  running  not  more 
than  go  days  it  has  become  the  bulwark  of 
French  credit  operations. 

Most  of  the  paper,  however,  comes  to  it 
through  other  banks.  The  bank  check  is 
supplanted  by  the  commercial  instrument, 
with  which  the  tradesman  pays  his  bill.  The 
bank  intervenes  and  furnishes  the  third 
indorsement,  thereby  making  it  eligible  for 
rediscount  at  the  Bank  of  France. 


Commercial  Paper  in  Germany 

Chapter  XII 


\T  THE  head  of  the  German  banking 
/-\  system,  and  in  control  of  the  German 
-^  -*-  money  market  stands  the  great  Reichs- 
bank,  a  semi-public  institution,  privately 
owned  but  publicly  managed.  It  is  not  only 
the  bank  of  banks,  but  a  bank  for  the  industrial 
and  commercial  enterprises  of  the  country.  It 
is  supervised  by  a  board  constituted  of  high 
state  officials,  and  is  presided  over  by  the 
Imperial  Chancellor,  who  is  its  nominal  head. 
Its  capital  of  $45,000,000  is  all  publicly 
subscribed. 

The  chief  business  of  the  Reichsbank  is  the 
discounting  of  bills,  which  business  is  increas- 
ing every  year.  It  is  the  general  policy  to 
discount  only  such  bills  as  are  in  fact  genuine 
mercantile   bills,   and   to  exclude  credit   and 


finance  bills  that  do  not  represent  a  trade 
transaction.  There  is  soundness  in  this  prac- 
tice; for  a  bill  based  upon  a  real  money  claim 
is  in  a  measure  security  in  itself.  It  is  secured 
first  by  the  business  capital  already  employed 
in  the  concern  and  when  discounted  it  dis- 
charges the  economic  function  of  liquidating 
that  portion  of  the  producer's  capital  contained 
in  the  goods.  The  bill  releases  the  fixed  capital 
in  the  goods  which  becomes  available  for 
another  operation. 

The  chief  merit  of  the  Reichsbank  as  a  help 
to  industry  lies  in  the  fact  that  it  extends 
credit  liberally  at  all  times,  makes  no  distinc- 
tion and  serves  all  alike.  The  fact  that  it 
loses  money  by  thus  extending  its  facilities 
makes  no  difference;  it  is  there  to  serve  the 


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COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


people.  It  has  discounted  at  3  per  cent,  when 
it  had  to  pay  a  tax  of  5  per  cent,  on  the  notes 
it  issued  to  make  the  discount  possible.  Its 
interest  to  the  public  is  considered  as  para- 
mount to  that  of  making  money. 

The  Reichsbank  is  authorized  to  discount, 
buy  and  sell  bonds  of  the  Empire,  of  any 
German  state  or  municipality,  maturing  at 
their  face  value  within  three  months  at  the 
longest.  It  is  also  empowered  to  discount, 
buy  and  sell  bills  of  exchange  running  for  not 
more  than  three  months,  and  bearing  as  a 
rule  three,  but  in  no  case  less  than  two  names 
of  well-known  solvency.  Bills  are  not  renewed 
except  in  the  case  of  farmers.  It  holds  the 
balances  of  other  banks  which  regard  these 
deposits  as  cash. 

It  handles  the  Giro  system  of  payment,  by 
which  transfers  of  money  are  made  between 
various  places  and  persons  in  the  Empire, 
a  brief  description  of  which  is  found  below. 

It  is  the  fiscal  agent  of  the  government  and 
receives  and  disburses  the  public  funds.  It 
has  487  branches. 

It  deals  with  any  reputable  merchant  who 
will  furnish  the  information  asked  for,  and 
receives  deposits  as  low  as  one  mark.  It 
^pays  no  interest  on  balances  and  its  deposits 
i  are  subject  to  check.  It  discounts  as  low  as 
ten  marks,  and  is  exceedingly  liberal  in  its 
lending  methods.  The  strength  of  the  whole 
German  system  lies  in  the  fact  that  the  Reichs- 
bank is  a  bank  of  the  people  as  well  as  a  bank 
of  banks.  It  numbers  its  clients  by  the 
hundred  thousand,  and  in  191 2  discounted 
bills  to  the  amount  of  over  $500,000,000 
averaging  only  37  days  in  duration." 

The  Bank  always  has  a  large  amount  of 
bills  payable  in  foreign  countries  in  gold,  and 
in  times  of  need,  these  are  allowed  to  mature 
thus  bringing  in  the  metal.  At  such  times 
it  makes  advances  without  interest  while  the 
gold  is  in  transit,  thus  materially  accelerating 
exchanges. 

When  the  rates  of  exchange  are  favorable, 
the  Reichsbank  increases  its  holdings  of  foreign 
bills,  and  when  funds  are  needed,  or  exchange 
unfavorable,  the  bills  are  sold  or  allowed  to 
mature.  It  thus  uses  its  foreign  portfolio 
to  regulate  exchange  rates  and  to  bring  in 
gold  when  gold  is  needed. 

A  feature  of  both  the  German  and  French 
money  markets  is  the  presence  of  a  vast 
amount  of  mortgage  bonds,  issued  by  the 
mortgage  banks  of  these  countries.  These 
bonds  are  held  largely  by  private  investors, 
are  traded  in  on  the  stock  exchanges,  accepted 
as   collateral   by   other   banks   and   form    an 


important  part  of  the  market  operations. 
Mortgages  held  by  institutions  in  Germany 
are  estimated  at  $6,000,000,000,  besides  a 
large  amount  held  by  individuals. 

Commercial  Paper  the  Basis  of 

Note  Issue 

The  chief  distinction  of  the  Reichsbank,  so 
far  as  bills  of  exchange  are  concerned,  lies  in 
the  fact  that  in  Germany  as  in  France,  such 
instruments  form,  with  gold,  the  basis  of  the 
note  issue;  Germany  being  extremely  favorable 
to  commercial  paper  as  such  a  foundation. 
And  being  based  on  commercial  paper,  the 
notes  expand  and  contract  with  the  commer- 
cial needs. 

The  note  issues  of  the  Reichsbank  must  not 
be  greater  than  three  times  the  amount  of 
gold  and  silver  on  hand.  The  excess  must  be 
covered  by  bills  running  not  over  three  months, 
and  having  three,  but  in  exceptional  cases 
two  names. 

There  is  no  absolute  maximum  issue,  but 
there  is  a  tax  when  the  issue  is  in  excess  of 
the  stipulated  bounds.  And  as  above  stated, 
such  tax  is  often  borne  by  the  Reichsbank, 
rather  than  place  the  burden  upon  the  public. 
It  maintains  a  strong  reserve  in  metal  against 
notes,  running  usually  above  fifty,  and  has 
been  as  high  as  85  per  cent.  The  cash  reserves 
to  notes  and  deposits  run  from  30  up  to  67 
per  cent.  In  191 3  the  ratio  of  coin  to  notes 
was  68.98  and  coin  to  notes  and  other  obliga- 
tions, 51.43  per  cent. 

Lombards 

The  Reichsbank  loans  on  collateral  security, 
such  loans  being  termed  "Lombards."  The 
following  is  accepted  as  security:  Precious 
metals,  merchandise  within  the  country, 
municipal  and  corporate  securities,  bills  re- 
ceivable of  a  character  satisfactory  for  re- 
discount; bonds  of  mortgage  companies.  The 
rate  on  Lombard  loans  is  usually  about  one 
per  cent,  higher  than  on  discounts  and  such 
loans  are  not  permissible  as  cover  for  note 
issue.  These  loans  are  as  a  rule  not  less 
than  500  marks,  and  the  term  not  over  three 
months.  The  loan  may  be  recalled  without 
notice. 

Merchandise  Loans 

The  Reichsbank  is  also  authorized  to  loan 
on  warehouse  receipts.  The  storehouse  and 
the  date  of  appraisement  are  mentioned  in 
the  receipt  and  possession  of  the  goods  is 
vested  in  the  bank.  The  storehouse  may  not 
be  changed  without  consent  of  the  Reichsbank, 


62 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


and  ownership  by  the  bank  follows  the  goods. 
Title  to  the  goods  is  in  the  bank,  and  not 
merely  the  control  of  the  title  as  obtains  in 
this  country.  Goods  in  all  cases  must  be 
insured.  The  Reichsbank  owns  its  own  store- 
houses, but  it  does  not  become  responsible 
for  damages  to  the  goods  while  therein. 
Next  to  cash  and  the  balance  at  the  Reichs- 
bank, bills  and  Lombard  loans  are  considered 
the  most  liquid  holdings  of  the  German  banks. 

The   Bank  Acceptance   in  Germany 

In  Germany  the  direct  trade  bill  has  been 
displaced  by  the  bank  acceptance,  due  to  the 
custom  of  merchants  drawing  on  their  bankers 
instead  of  the  buyer,  and  using  the  banker's 
acceptance  in  paying  their  creditors.  Most 
of  the  German  bills  are  accepted  on  their  credit 
merit  and  not  against  collateral  as  obtains 
in  England.   It  is  exceptional  to  have  collateral. 

In  selling  a  bill  of  goods,  the  merchant  will 
arrange  with  his  banker  to  draw  on  the  latter 
for  the  amount,  thus  anticipating  payment  of 
goods.  When  so  accepted,  the  bill  is  sold 
to  other  banks,  or  in  the  open  market.  When 
thus  indorsed,  it  becomes  "prime"  paper  and 
eligible  to  rediscount  at  the  Reichsbank. 

Domestic  exchanges  in  Germany  of  all 
classes  are  to  a  large  extent  adjusted  by  means 
of  these  bank  acceptances.  At  the  close  of 
1907,  seventy-eight  per  cent,  of  the  bills  held 
by  all  banks  were  acceptances,  and  it  is  safe 
to  assume  that  at  present  fully  80  per  cent,  of 
the  bills  held  by  the  banks  are  acceptances. 
In  1907  the  Deutsche  Bank  had  no  promissory 
notes. 

The  amount  of  acceptances  out  is  not 
reported  in  the  weekly  statements  of  the 
banks  as  a  liability,  these  items  being  reported 
quarterly,  and  always  yearly.  But  if  the 
acceptances  are  too  large  for  the  capital, 
according  to  the  notions  of  the  Reichsbank, 
the  credit  of  the  over-expanded  bank  is  with- 
drawn, or  curtailed.  The  Reichsbank  is  the 
great  scrutinizer  and  regulator  of  the  accept- 
ance business. 

The  following  transaction  is  typical  of  the 
German  method  of  financing  imports  by 
means  of  the  bank  acceptance.  A  Bremen 
buyer  having  arranged  the  terms  of  a  trans- 
action, say  with  a  cotton  merchant  in  the 
South  goes  to  his  bank  and  gets  the  machinery 
ready  for  the  operation. 

A  bill  credit  account  is  opened  for  the 
Bremen  firm  by  its  bank,  and  the  firm  instructs 
its  representative  in  the  United  States  to 
allow  the  sellers  of  the  cotton  or  their  bankers 
to  draw  to  the  amount  of  the  purchase  price 


on  the  Bremen  firm's  bank  in  Germany.  The 
bill,  with  the  bill  of  lading  attached  passes 
from  hand  to  hand  in  this  country  and  is 
finally  sent  to  the  bank  in  Germany  for  ac- 
ceptance. 

At  the  time  the  bank  assumes  its  liability 
by  the  acceptance,  it  has  a  guaranty  in  the 
bills  of  lading,  that  the  goods  have  gone  for- 
ward and  it  therefore  controls  the  title  to  the 
same.  Moreover,  it  has  evidence  that  a  trade 
transaction  has  taken  place.  In  case  the 
cotton  has  been  sold  before  arrival,  it  will  of 
course  go  forward;  but  if  not,  the  cotton  will 
go  into  warehouse  and  the  bill  of  lading  will 
be  exchanged  for  a  warehouse  receipt.  In 
case  the  goods  have  been  sold,  the  goods  are 
delivered  in  trust  to  the  importer  to  be  for- 
warded, and  "blank  credit"  is  granted  him 
until  the  remittance  in  the  form  of  an  accepted 
bill  has  been  returned  by  him.  The  returned 
bill  of  the  spinner  is  discounted  at  the  bank 
granting  the  acceptance  credit,  and  the  amount 
credited  to  the  importer  under  date  of  its 
maturity;  so  that  the  bank  is  covered  in  due 
time  before  the  bill  it  has  accepted  becomes 
payable. 

The  importation  of  wool  from  Australia 
and  the  Argentine,  corn  and  copper  from 
America,  rice  from  Asia,  and  ore  from  Sweden 
and  Spain  is  conducted  in  the  same  manner. 
The  risk  is  in  forged  documents,  and  bank- 
ruptcy on  the  part  of  the  spinner  and  the 
importer  while  the  goods  are  in  trust,  against 
which  precautionary  measures  are  taken. 

While  the  German  acceptance  has  gained 
considerable  popularity  in  international  mar- 
kets, in  certain  countries  of  South  America 
and  in  Australia  and  Asia,  bills  must  even  yet 
be  in  sterling,  thus  favoring  London  as  the 
financial  clearing  house. 

In  financing  exports,  the  bank  also  plays 
an  important  role,  in  such  cases  really  making 
an  advance  on  the  goods,  as  soon  as  they 
are  despatched. 

A  German  merchant  having  sold  a  bill  of 
goods  to,  say  an  Argentine  merchant  on  six 
months'  time,  wants  the  immediate  cash.  He 
does  not  draw  on  the  Argentine  merchant,  for 
this  is  not  the  terms  of  the  sale,  and  the  draft 
would  not  be  accepted  and  would  be  of  no 
use.  He  therefore  solicits  a  loan  from  his 
banker;  that  is  he  arranges  that  the  banker 
shall  accept  a  draft  drawn  on  the  strength  of 
the  sale,  which,  after  acceptance  becomes  a 
"Banker's  acceptance"  and  therefore  salable 
in  the  open  market.  The  time  is  usually 
three  months,  and  the  rate  is  usually  %  oi  1 
per  cent,  for  three  months. 


63 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


Other  Banking  Operations 
IN  Germany 

The  vanguard  of  the  German  banking 
system  consists  of  five  great  Berlin  institutions, 
which  together  with  about  forty  aUied  banks 
in  which  they  hold  stock  and  often  controlling 
interest  form  five  groups.  Together  with  the 
Reichsbank,  they  form  the  commercial  banking 
system  of  Germany,  while  the  great  mortgage 
banks,  the  Landschaften,  and  co-operative 
credit  societies  form  the  land  and  credit  banks. 
Of  the  total  funds  of  over  400  banks,  nearly 
fifty  per  cent,  is  in  the  hands  of  the  eight 
Berlin  Banks.  And  with  their  affiliations  and 
control  more  or  less  complete,  they  dominate 
the  banking  interest  of  the  Empire. 


There  are  no  brokerage  houses  in  Germany 
such  as  we  know  them  here,  and  the  banks 
do  a  stock  exchange  business  in  connection 
with  their  regular  banking  operations.  All 
banks  are  members  of  the  stock  exchange  and 
have  a  number  of  men  on  the  floor  who  buy 
and  sell  for  customers. 

All  these  banks  are  closely  affiliated  with 
the  Reichsbank  in  that  the  latter  carries  the 
reserves  of  the  other  banks,  the  banks  carrying 
but  a  small  amount  of  coin  in  their  vaults, 
treating  the  deposit  in  the  Reichsbank  as  a 
'  cash  item.  The  reserves  of  these  banks  are 
not  treated  as  a  dormant  balance,  but  a  sum 
with  which  to  do  business — the  rightful  func- 
tion of  a  reserve.  They  pay  more  attention 
to  the  amount  of  prime  paper  on  hand  than 


'J/'  Oooh 


^My/  ■  ^/yY/X-.'^^^^C^yu/.  ^S^//^'j. 


liitKMiD,MK:i^ 


^Ji-yuC^^^v^    ^' 


^"^.  iS^i^-  ^^' 


Duplicate  Unpaid. 


//^./^OJ^      (SPEOMiH)      -^ 


By  courtesy  of  Brown  Bros.  &  Co.,  Naw  York 


BANKERS'  CHEQUE 

(German  lorm.    Note  words  "on  account  of  funds  due  to  us.") 


These  banks  have  in  a  very  large  measure 
been  responsible  for  the  development  of 
German  industry,  which  development  dates 
back  to  1 87 1.  All  the  great  banks  have  been 
organized  since  that  year,  and  through  their 
activities  trade  has  been  fostered,  and  world 
wide  commercial  relations  established.  They 
actively  participate  in  industrial  development, 
forming  syndicates,  and  financing  various 
development  enterprises.  These  banks  work 
on  the  theory  that  to  develop  trade  is  just 
!  as  important  as  to  develop  agriculture.  /"At 
the  end  of  191 2  the  bills  discounted  by  these 
banks  were  three  billion  marks,  one  and  one- 
half  billions  of  which  were  absorbed  by  the  six 
great  Berlin  institutions.  The  aggregate  of 
the  Reichsbank's  discounts  was  two  billion 
marks.  About  60  per  cent,  of  the  discounts 
are  for  banks. 


the  cash.  They  carry  only  enough  money 
to  do  business  with.  The  quick  assets  consists 
of  cash  on  hand  and  on  deposit,  prime  bills, 
short  loans  and  choice  securities,  these  items 
running  as  high  as  55  per  cent,  of  the  liabilities. 
In  addition,  from  10  to  15  per  cent,  of  the 
deposit  liabilities  is  carried  in  short  current 
accounts.  It  is  the  custom  of  these  banks 
to  send  their  maturing  bills  to  the  Reichsbank 
about  ten  days  before  maturity  for  collection. 
The  funds  are  thus  kept  in  a  liquid  state  and 
constantly  turning  over.  Thus  the  Deutsche 
Bank  carries  a  large  amount  of  commercial 
bills,  of  the  highest  class,  about  $2,000,000 
maturing  daily,  not  over  three  months  to 
run,  and  an  average  maturity  of  under  75 
days,  and  considers  these  part  of  the  reserve. 
The  Reichsbank  is  more  restricted  by  law 
than   the   other   German  banks,   and  at   the 


64 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


latter,  the  rate  of  discount  may  be  less  than 
at  the  Reichsbank.  The  private  banker 
knows  his  clients,  and  may  be  willing  to  accept 
bills  at  a  less  rate  than  the  official  rate  (which 
has  been  as  high  as  7>^  per  cent.),  and  he 
might  take  bills  the  Reichsbank  would  not 
accept.  It  is  only  prime  bills — those  in  the 
sum  of  5,000  marks  or  more  and  maturing  in 
from  56  to  90  days  that  command  the  private 
rate. 

TEe  Reichsbank  does  not  purchase  securities 
but  carries  government  and  municipal  bonds 
so  as  to  have  a  supply  for  selling  purposes. 
It  does  not  buy  railroad  issues. 

Checks  in  Germany 

'  The  operation  of  the  Giro  system  of  pay- 
ments has  resulted  in  the  restriction  of  the 
use  of  checks  in  Germany,  and  they  have  not 
had  the  development  as  in  England  and 
America.  The  people  are  not  accustomed  to 
having  checking  accounts,  but  they  are  gradu- 
ally adopting  the  check  system  of  payments, 
the  banks  of  the  country  aiding  in  this  propa- 
ganda. The  Reichsbank  has  not,  however, 
led  in  this  m.ovement,  it  having  encouraged  the 
use  of  bills  of  exchange  more  than  the  use  of 
the  check.  The  latter  would  seem  the  better 
of  the  two,  for  as  one  German  writer  well  puts 
it:  "A  man  who  issues  a  bill  of  exchange  needs , 
money;  one  who  issues  a  check  has  money." 
The  English  system  of  "crossing  checks"  is 
in  vogue,  and  is  widely  employed,  the  effect 
being  to  transfer  the  amount  to  the  payee's 
credit  and  prevent  cashing.  Certified  checks 
are  not  contemplated  in  the  check  laws.  The 
rapid  growth  of  the  great  banks,  which  have 
covered  the  country  with  branches,  has  done 
much  to  increase  the  use  of  the  check. 

Germany's  Unique  "Giro  System"  of 
Money  Transfers 

The  most  effective  use  of  bank  credit  obtains 
in  Germany  under  the  Giro  system  of  transfer, 
by  which  bank  funds  are  transferred  from 
one  person  to  another,  and  from  place  to 
place  with  little  ceremony  and  at  trifling  cost. 
It  is  one  of  the  distinctive  but  not  exclusive 
functions  of  the  Reichsbank,  and  has  developed 
to  enormous  proportions,  the  Giro  transactions 
in  1913,  aggregating  189,601,916,000  marks  or 
nearly  48  billion  dollars. 

The  Giro  system  is  possible  because  of  the 
large  number  of  branches  of  the  Reichsbank, 
which  makes  it  possible  to  transfer  funds  to 
any  part  of  the  country,  and  by  reason  of  the 
large    number    of    Giro    depositors    (26,148, 


January  i,   19 14)  a  large  clientele  is  served. 

The  Giro  account  is  available  to  anyone 
who  will  keep  the  balance  stipulated,  and  is 
availed  of  by  all  classes  of  merchants,  institu- 
tions, corporations,  banks,  and  public  authori- 
ties, but  the  banks  participate  in  these  opera- 
tions to  the  extent  of  over  50  per  cent,  of  the 
total.  No  interest  is  paid  on  Giro  balances,  and 
no  charge  is  made  for  the  service  except  as  noted 
below.  To  facilitate  transfers,  a  list  of  Giro 
depositors  is  published,  with  the  Giro  number, 
s  milar  to  the  list  used  in  the  Numerical  Tran- 
sit System  in  this  country.  Merchants  and 
n  anufacturers  are  advised  to  state  that  they 
are  members  of  the  Giro  system  on  their 
stationery,  giving  their  Giro  number. 

Upon  opening  account,  the  depositor  re- 
ceives a  set  of  blanks  together  with  an  account 
bock  in  which  is  kept  a  record  of  the  trans- 
actions. No  other  certificates  are  given. 
The  blanks  are  to  be  carefully  safeguarded  so 
that  only  authorized  Giro  depositors  shall 
come  into  possession  of  the  blanks;  but  the 
burden  is  upon  the  depositor:  Careless  filling 
in  of  checks  works  to  charge  the  depositor 
with  the  risk  of  forgery. 

Cash,  bills  of  exchange,  proceeds  of  collateral 
loans  and  checks  are  credited  to  the  Giro 
account  at  once.  Deposits  may  be  withdrawn 
on  demand.  Cash  withdrawals  are  required 
to  be  on  white  slips,  made  out  to  a  designated 
payee,  "or  bearer"  and  the  Reichsbank  pays 
to  bearer  without  verifying  his  right  to  it 
even  though  the  check  is  drawn  to  order. 
Checks  intended  for  settlement  with  the 
Reichsbank,  or  with  another  account  holder 
must  be  marked  "nur  zur  verrechnung  "  (for 
accounting  only)  and  in  this  case  the  check 
will  not  be  paid  in  cash. 

For  transfers  to  the  same  or  another  bank- 
ing city,  a  red  check  is  used.  They  must  be 
made  out  to  the  order  of  a  particular  person 
and  are  not  transferable. 

The  depositor  simply  hands  in  a  red  slip, 
the  result  of  which  is  to  transfer  from  his 
account  to  another  account,  it  may  be  in  a 
distant  city,  the  designated  amount;  and  this 
without  cost  or  delay. 

As  above  stated,  no  charge  is  made  for  this 
service,  the  compensation  to  the  Reichsbank 
coming  from  the  use  of  the  free  money;  but 
red  checks  presented  between  4  and  4:30  P.  M. 
are  charged  a  fee  of  50  pfennings;  and  if 
delivered  between  4.30  and  5  o'clock,  are 
charged  one  mark.  For  withdrawing  an 
order  a  fee  of  one  mark  is  charged.  Immedi- 
ate transfers  are  made  upon  paying  a  fee  of 
one  mark  and  postage. 


65 


COMMERCIAL    PAPER    AND     BILLS    OF    EXCHANGE 


While  depositors  are  encouraged  to  use  the 
Giro  system  to  its  full  extent,  they  are  for- 
bidden to  extend  its  use  to  non-members. 
Giro  transactions  are  also  performed  by  the 
other  banks,  to  such  an  extent  that  they 
ultimately  threaten  to  deprive  the  Reichs- 
bank  of  its  place  as  the  leader  in  this  sphere 
of  credit  operations. 

The  resulting  benefits  to  Germany's  com- 
merce and  trade  can  be  appreciated  by  con- 


templating the  advantages  accruing  to  the 
merchants  and  manufacturers  of  our  country 
if  money  could  be  transferred  anywhere  with- 
out cost,  except  the  loss  of  interest  on  a  bank 
balance.  But  to  become  operative  there 
would  have  to  be  a  branch  bank  system  or 
bank  affiliations  working  together  for  mutual 
service;  a  condition  that  cannot  exist  in  a 
series  of  several  thousand  distinct  units,  each 
looking  for  profit  to  itself,  j 


Commercial  Paper  in  Japan 


Chapter  XIII 


THE  methods  observed  in  discounting 
commercial  paper  in  Japan  are  sim- 
ilar to  those  in  other  countries.  The 
business  transaction  being  concluded,  the  pur- 
chaser of  a  bill  of  goods  gives  his  note  to  the 
seller,  payable  at  his  (the  buyer's)  bank  or  at 
his  own  place  of  business.  The  payee  indorses 
the  same  and  discounts  it  at  his  bank;  this 
bank  in  turn  indorses  it  and  rediscounts  it  with 
the  Bank  of  Japan.  The  bill  of  exchange  when 
drawn  against  a  sale  of  merchandise  operates 
the  same,  the  drawee  accepting  it  payable  at 
his  bank.  After  acceptance  it  is  returned  to  the 
drawer  who  discounts  it  with  his  bank,  which 
in  turn  may  indorse  and  rediscount  it  at  the 
Bank  of  Japan.  At  maturity  bills  of  exchange 
and  promissory  notes  are  presented  for  pay- 
ment through  the  clearing  house.  Small  banks 
not  members  of  the  clearing  house  make 
clearings  through  members. 

Where  instruments  are  dishonored,  they 
are  handed  to  the  notary  and  protested  within 
two  days.  Paper  to  be  eligible  for  rediscount 
at  the  Bank  of  Japan  must  have  the  indorse- 
ment of  two  parties,  one  of  which  must  be 
the  bank  presenting.  In  case  there  is  but  one 
name,  collateral  approved  by  the  Bank  of 
Japan  must  accompany.  In  order  to  be  dis- 
counted with  the  Bank  of  Japan,  paper  must 
be  presented  the  day  previous  for  examination 
before  10:30  A.M.  Bills  secured  by  collateral 
are  not  subject  to  this  rule. 

Goods  for  Export 

A  transaction  between  Japan  and  America 
would  be  handled  as  follows:  The  exporter  in 
Japan  presents  to  his  local  bank  a  draft  on 
the  buyer  in  America,  with  shipping  docu- 
ments attached.  The  local  bank  will  purchase 
the  instrument  and  forward  to  the  United 
States  for  collection. 

We  are  indebted  to  the  New  York  Agency 
of  the  Bank  of  Japan  for  the  two  accompany- 


ing facsimiles,  the  promissory  note  and  domes- 
tic bill  of  exchange,  which  are  the  two  principal 
credit  instruments  used  in  commercial  trans- 
actions. Both  of  these  instruments  are  eligi- 
ble for  rediscount  by  the  Bank  of  Japan. 

The  Bank  of  Japan 

The  banking  system  of  Japan  centers  in 
the  Bank  of  Japan,  which  is  organized  and 
modelled  after  the  Central  Bank  of  Belgium, 
the  purpose  being  to  facilitate  the  handling 
and  disposition  of  money  belonging  to  the 
treasury,  to  supervise  the  national  bond  issue 
and  to  adjust  the  monetary  conditions  at 
hom^e  and  abroad.  The  business  transacted 
by  the  Bank  of  Japan  consists  of  discounting 
and  purchasing  government  bills,  bills  of 
exchange  and  commercial  bills,  buying  and 
selling  bullion,  making  loans  on  security  of 
metallic  deposits,  collecting  bills  for  its 
regular  customers,  receiving  deposits  for 
account  and  on  safe  deposit,  and  making 
advances  on  various  securities.  The  Bank  of 
Japan  works  in  conjunction  with  the  ordinary 
banks,  savings  banks  and  Yokohoma  Specie 
Bank  in  exchange  transactions.  The  latter 
bank  was  organized  to  facilitate  both  exports 
and  imports.  The  Bank  of  Japan  makes  ad- 
vances and  rediscounts  bills  for  the  Yokohoma 
Specie  Bank.  The  Bank  of  Japan  never  deals 
directly  in  foreign  exchange  or  sends  money 
abroad.  Government  transactions  abroad  are 
therefore  handled  by  the  Yokohoma  Specie 
Bank  for  the  Bank  of  Japan.  The  Bank  of 
Japan  must  keep  gold  or  silver  coins  or  bul- 
lion as  a  conversion  reserve  equal  to  the 
convertible  bank  notes  issued.  The  amount  of  M 
silver  coins  and  bullion  must  not  exceed  one  ™ 
quarter  of  the  whole  amount  of  the  conversion 
reserve.  Outside  of  the  above  quotations,  it 
may  issue  convertible  bank  notes  on  the  secur-  V'* 
ity  of  government  bonds  or  other  bonds  and  ', 
commercial  bills  of  a  reliable  nature. 


66 


COMMERCIAL     PAPER     AND     BILLS     OF     EXCHANGE 


WO 


1 

it^ 

ft  5 

•     B 

5 

V 

a^e, 

rr 

BILL   OF   EXCHANGE 


We  reproduce  these  instruments  by  courtesy  of  the  Bank  of  Japan. 


O  g^O  re  S 


5  2       D 


^4 


PROMISSORY   NOTE 


67 


The  Origin  of  Commercial  Paper  and 
Bills  of  Exchange 

Chapter  XIV 


THE  mechanism  of  credit  instruments 
is  not  a  modern  creation.  The  mak- 
ing of  loans  on  promissory  notes  is  as 
old  as  authenticated  history. 

Instruments  of  credit  were  in  use  while 
yet  coinage  was  unknown.  Transfer  of  credit 
instruments  was  made  in  Assyria,  Phoenicia, 
and  Egypt  long  before  the  system  attained 
full  development  in  Greece  and  Rome.  Manu, 
the  Sanskirt  law  giver,  speaks  of  judicial 
proceedings  in  which  credit  instruments  were 
a  factor. 

Such  instruments  were  in  use  in  Babylonian 
times,  in  business  dealings.  Promissory  notes 
and  contracts  were  inscribed  on  tablets  of 
clay,  evidently  with  a  die,  for  each  character 
is  plain  and  distinct.  The  tablet  was  then 
baked  or  sun  dried  to  prevent  the  obliteration 
of  the  inscription.  History  dates  some  of 
these  tablets  2,000  to  3,000  B.  C. 

From  the  frequency  with  which  these 
tablets  were  used,  their  durability,  and  the 
care  taken  to  preserve  them  in  the  tern. pies, 
which  are  known  to  have  served  as  banks,  and 
particularly  from  the  inscriptions,  there  can 
be  no  doubt  that  these  tablets  correspond 
to  the  modern  promissory  note,  and  were 
common  instruments  in  commercial  trans- 
actions. When  the  debt  was  paid  the  tablet 
was  broken. 

A  large  collection  of  these  tablets,  in  perfect 
state  of  preservation,  recording  various  busi- 
ness transactions  during  the  Babylonian  period 
are  now  in  the  Metropolitan  Museum  of  Art 
in  New  York. 

The  Origin  of  Bills  of  Exchange 
Uncertain 

The  numerous  commentators  on  the  law  of 
bills  and  notes  have  searched  ancient  history 
with  great  care  to  discover  the  origin  of  the 
bill  of  exchange.  And  yet  it  cannot  be 
stated  with  any  degree  of  certainty  by  whom 
they  were  invented  or  first  used.  It  is  said 
by  Pothier  that  there  is  no  vestige  of  them 
among  the  Romans,  or  of  any  contract  of 
exchange.  It  appears,  however,  that  Cicero 
directed  one  of  his  friends,  at  Rome,  who  had 
money  due  him  at  Athens,  to  cause  it  to  be 
paid  to  his  son  at  that  place,  and  the  friend 


accordingly  wrote  to  one  of  his  debtors  at 
Athens  and  ordered  him  to  pay  a  sum  of 
money  to  Cicero's  son;  yet  it  is  observed  that 
this  transaction  amounted  to  nothing  more 
than  a  mere  order  and  was  not  that  species  of 
negotiation  which  is  conducted  through  the 
medium  of  a  bill  of  exchange. 

Origin  Credited  to  the  Jews 

Other  historians  credit  the  origin  of  the 
bill  of  exchange  to  the  Jews,  who  used  this 
method  of  transfer  of  property  upon  their 
banishment  from  France  in  the  reign  of 
Philip  Augustus  and  Philip  de  Long,  as  a  means 
of  evading  the  confiscation  of  their  property, 
by  its  prompt  and  secret  transfer. 

They  were  shut  out  from  the  trades,  and 
the  acquisition  of  real  property  was  denied 
them  in  nearly  every  European  country. 
Exclusion  from  realty  owners  hip  was  not  a 
hardship,  if  property  was  to  be  the  subject  of 
constant  confiscation,  since  money  or  its 
representative  could  easily  le  transported. 
The  transfer  of  money  being  expensive,  its 
transfer  by  means  of  credit  instruments  was  a 
natural  consequence. 

Blackstone,  the  great  commentator  says: 
"This  method  is  said  to  have  been  brought 
into  general  use  by  the  Jews  and  Lombards 
when  banished  for  their  usury  and  other 
vices,  in  order  to  more  easily  draw  their 
effects  out  of  France  and  England  into  those 
countries  in  which  they  had  chosen  to  reside. 
But  the  invention  was  a  little  earUer;  for  the 
Jews  were  banished  out  of  Guienne  in  1287, 
and  out  of  England  in  1290,"  while  the  use  of 
paper  credit  was  introduced  into  the  Mogul 
Empire  in  China. 

Other  writers  assign  the  origin  of  bills  of 
exchange  to  the  GibeHns,  on  their  being 
expelled  from  Italy  by  the  faction  of  the 
Guelphs.  The  motives,  in  either  instance  were 
the  same,  namely,  to  withdraw  their  effects 
with  the  secrecy  necessary  to  prevent  con- 
fiscation. Therefore  they  gave  bills  on  their 
friends  for  the  sums  agreed  upon,  the  values 
being  regulated  by  the  values  of  the  different 
coins  exchanged.  As  many  of  the  bills  came 
back  unpaid,  it  gave  birth  to  the  charge  of 
re-exchange,   first   begun   by   the  Lombards, 


68 


COMMERCIAL    PAPER    AND     BILLS    OF    EX>'C''H.A>'N'GE'  '  >V 


who,  after  different  modifications,  fixed  it 
into  a  branch  of  the  business.  They  retired 
on  their  first  expulsion  from  Italy  into  Lyons 
in  France  and  other  kingdoms  in  Europe,  so 
that  it  was  these  people  who  first  sowed  the 
seeds  of  such  negotiations  in  the  minds  of  the 
Belgick  merchants,  who  duly  cultivated  and 
spread  them  all  over  Europe  for  the  easier 
conduct  of  mercantile  affairs. 

The  Argentarii  of  Italy  were  first  money 
changers,  then  the  receivers  of  deposits,  then 
lenders  at  interest,  and  purchasers  of  bills  of 
exchange.  Deposits  were  utilized  as  the  basis 
of  transfers  of  paper  credit,  and  loans  were 
made  by  these  instruments  without  direct 
withdrawal  of  cash  from  the  bankers'  hands. 
To  perscribere  was  to  give  a  check  on  one's 
account,  or  transfer  credit  from  one  to  the 
other.  These  orders,  however,  lacked  the 
character  of  modern  checks  in  not  being 
negotiable. 

Interest  as  a  legitimate  charge  for  the  use 
of  money  was  denied  by  the  church,  but  as 
early  as  the  13th  century  it  was  conceded  that 
if  usury  was  against  the  perfection  of  the 
Christian  law,  it  was  at  least  not  contrary 
to  civic  interests.  St.  Thomas  admitted 
that  the  loss  resulting  to  the  lender,  who  was 
deprived  of  the  use  of  his  money,  gave  birth 
to  the  word  interest  as  a  substitute  for  usury. 

The  charge  made  for  the  transfer  of  money 
was,  therefore,  to  cover  the  interest  for  its 
use;  hence  many  continental  codes  of  com- 
merce provided  that  bills  of  exchange  should 
be  payable  in  a  different  place  from  that 
drawn.  The  bill  was  converted  into  a  direct 
loan  in  form  called  "dry  exchange,"  by  the 
borrower  drawing  on  a  fictitious  person,  in 
some  foreign  country  at  current  rates,  which 
bill  was  delivered  to  the  lender. 

At  maturity  the  bill  was  returned  protested 
and  borrower  charged  with  exchange  and 
expenses,  amounting  to  from  20  to  30  per 
cent.,  the  bill  never  having  left  the  country. 
(Conant  Principles  of  Money  and  Banking 
vol.  II,  p.  176) 

The  ''Tally" 

Up  to  the  beginning  of  the  nineteenth 
century,  there  was  in  use  a  peculiar  form  of 
credit  instrument  called  the  "tally,"  which 
took  the  place  of  both  coin  and  private  tokens. 
The  "tally"  was  a  stick  of  square  hazelwood 
notched  in  a  manner  to  indicate  the  amount 
due.  The  name  of  the  debtor  and  the  date 
were  written  on  opposite  sides  of  the  stick, 
which  was  split  down  the  middle  in  such  a 
way  that  the  notches  were  cut  in  half,  but 


the  name  and  date  appeared  on  both  halves. 
The  split  was  stopped  by  a  cross  cut  about 
an  inch  from  the  base,  so  that  one  piece  was 
shorter  than  the  other.  The  buyer  kept  one 
piece,  the  seller  the  other,  and  the.  deb  tor 
was  thus  protected  by  keeping  the  "stock" 
or  stub,  so  that  while  both  had  a  complete 
record  of  the  transaction,  one  was  protected 
from  fraud  by  reason  of  his  "stock."  These 
tallies  were  transferable  and  negotiable  just 
like  bills  of  exchange. 

The  Great  Fairs  of  Europe 

Bills  of  exchange  did  not  circulate  as  freely 
in  England  as  on  the  Continent,  due  to  the 
supposed  non-alienability  of  debts  in  the 
Common  Law  of  England.  On  the  Continent 
debts  were  as  salable  as  any  other  property, 
bills  of  exchange  circulating  as  freely  as  money. 
At  several  great  trading  centers,  Antwerp, 
Lyons,  Brussels  and  many  other  places,  there 
were  held  great  fairs  at  certain  periods.  The 
Continental  merchants  instead  of  making 
their  bills  payable  at  their  own  houses,  where 
cash  must  have  been  kept  to  meet  them,  made 
them  payable  only  at  these  fairs.  Their 
bills  circulated  freely  until  fair  time  when 
they  were  redeemed.  The  merchants  met  at 
these  fairs  and  adjusted  their  mutual  claims, 
and  by  this  means  an  enormous  commerce 
was  carried  on  without  the  aid  of  specie.  It 
is  said  by  an  eminent  economist  that  over 
80,000,000  transactions  were  settled  at  the 
great  fair  of  Lyons  without  the  use  of  a  single 
coin.  This,  of  course,  was  before  the  era  of 
banking. 

Great  fairs  were  also  held  in  England,  at 
which  mutual  debts  were  settled  by  the  ex- 
change of  tallies,  justices  being  set  over  the 
fairs  to  settle  commercial  disputes  and  to 
prove  the  tallies  according  to  the  commercial 
law.  The  greatest  of  these  fairs  was  that  of 
St.  Giles  in  Winchester,  while  the  most 
famous  in  Europe  were  those  of  Champagne 
and  Brie  in  France.  They  were  also  held  in 
Greece,  Rome,  India,  Mexico  and  Egypt.  It 
was  the  custom  everywhere  in  drawing  up 
contracts  to  make  them  payable  at  these  fairs. 

Bills  of  Exchange  in  England 

Bills  of  Exchange  were  in  use  upon  the 
Continent  before  they  were  introduced  into 
England,  where  they  first  came  into  vogue 
about  the  middle  of  the  seventeenth  century. 
At  first  the  term  "bill"  was  synonymous  with 
"note,"  and  it  is  difficult  to  determine  from  the 
early  cases  whether  one  or  the  other  was  in 
suit.     Lord  Holt  (1704)  is  reported  to  have 


60 


r  ^^^'':"€Oi\iME!R'ClAL    PAPER    AND     BILLS    OF     EXCHANGE 


said  that  he  remembered  when  actions  on 
inland  bills  first  began,  and  declared  that  the 
effort  to  place  bills  and  notes  on  the  same 
footing  ''proceeded  from  the  obstinacy  and 
opinionativeness  of  the  merchants  who  were 
endeavoring  to  set  the  law  of  Lombard  Street 
above  the  law  of  Westminster  Hall."  The 
controversy  terminated  in  the  statute  of  Anne, 
1705,  which  made  promissory  notes  assignable 
or  endorsable  over  in  the  same  manner  as 
inland  bills  of  exchange,  according  to  the 
customs  of  merchants.  Some  authorities  con- 
tend that  the  Statute  of  Anne  merely  declared 
their  existing  status,  and  Professor  Parsons 
concludes  that  "these  notes  were,  at  the  time 
the  statute  was  made,  negotiable  by  the  law 
merchant  of  England,  which  was  and  is  as 
much  a  part  of  the  law  of  England  as  the 
laws  relating  to  marriage  or  murder." 

These  "customs  of  merchants"  grew  out  of 
the  usages  and  practices  of  merchants,  who 
were  numerous  in  the  towns  and  cities  of 
England  during  the  Hanseatic  league,  and 
who  engaged  in  foreign  trade,  and  brought 
with  them  the  usages  of  the  Continent  relating 
to  bills,  the  main  features  being  negotiability, 
days  of  grace  and  consideration. 

The  Bills  of  Exchange  Act  of  1882  in  Eng- 
land codified  the  laws  of  the  United  Kingdom 
relating  to  bills  of  exchange,  notes  and  checks, 
reference  to  which  has  already  been  made. 

Promissory  Notes   in   England   and 
France 

In  many  of  the  dealings  merchant  with 
merchant,  a  less  complicated  mode  of  payment 
was  needed  than  the  ordinary  bill  of  exchange. 
A  trader  needing  credit  with  his  manufacturer 
or  wholesaler  might  not  have  the  facilities 
to  furnish  a  bill  on  another  man,  but  his  own 
responsibility  might  be  such  that  his  simple 
promise  to  pay  in  writing  might  be  accepted 
with  equal  confidence  as  such  a  bill;  and  the 
promissory  note  followed.  The  period  of 
their  introduction  was  about  thirty  years  prior 
to  the  reign  of  Queen  Anne,  1670.  These 
notes  were  first  considered  merely  written 
evidences  of  debt,  it  being  held  they  were  not 
assignable  or  endorsable  over,  within  the  cus- 
tom of  merchants,  to  any  other  person.  And 
if  indorsed  over,  the  person  to  whom  indorsed 
could    not   maintain    an    action    against    the 


drawer;  and  that  the  payee  could  not  main- 
tain such  action.  But  they  were  at  length 
put  on  the  same  footing  as  inland  bills,  as 
above  stated. 

As  early  as  1670  the  law  and  practice  as  to 
bills  of  exchange  was  fairly  well  defined  in 
France.  The  French  law  rigidly  keeps  in 
view  the  theory  that  a  bill  of  exchange  in  its 
inception  is  an  instrument  by  which  a  trade 
debt  is  transferred  to  another.  In  England 
bills  have  developed  into  a  paper  currency  of 
perfect  flexibility.  In  France  a  bill  represents 
a  business  transaction;  in  England  it  is  an 
instrument  of  credit.  English  law  permits 
accommodation  paper;  France  endeavors  to 
stamp  it  out.  England  requires  no  "value 
received"  to  be  stated  on  the  bill,  the  law 
presuming  consideration.  In  France  the  na- 
ture of  the  consideration  must  be  stated,  or 
the  contract  is  void  in  the  hands  of  any 
party  with  notice.  An  English  bill  may  be 
payable  to  bearer;  a  French  bill  to  order 
only. 

Bills  of  exchange  are  known  to  have  been 
used  in  this  country  in  the  early  days  of  the 
Newfoundland  fishing  industry.  Fishermen 
sold  their  catch  to  traders  at  the  market  price 
in  English  coin,  and  received  credit  on  their 
books  to  be  traded  in  for  supplies.  Balances 
due  from  the  traders  were  paid  by  ;^ra| 
England  or  France.    V 

Bills  of  Exchange  in  Ameri 

As  early  as  1727  "tobacco  notes"  were  issued 
in  Virginia.  These  were  notes  issued  by  official 
inspectors  against  tobacco  in  government  ware- 
houses— warehouses  receipts,  that  passed  cur- 
rent in  the  district  in  which  they  were  issued. 

Bills  of  credit  in  various  forms  were  used 
by  the  colonies  for  numerous  purposes,  such 
as  in  paying  the  wages  of  soldiers,  govern- 
ment expenses,  etc.,  but  these  were  intended 
to  circulate  as  money  itself,  and  were  not  bills 
of  exchange  or  promissory  notes  in  the  sense 
that  they  represented  a  transaction  in  trade, 
or  a  debt,  other  than  a  public  obligation.  The 
numerous  devices  used  in  lieu  of  metallic 
money  in  the  early  days  in  this  country  were 
in  form  but  not  in  substance,  true  commercial 
paper,  for  commercial  paper  arises  out  of 
business  transactions  and  circulates  as  money 
without  the  intent  on  the  part  of  the  maker 
that  it  shall  supplant  metallic  money. 


70 


THE  AMERICAN  ASSOCIATION  OF 
PUBLIC  ACCOUNTANTS 

Incorporated  under  the  Laws  of  New  York,  1887 

EXECUTIVE  OFFICE.  55  LIBERTY  STREET,  NEW  YORK 
The  National  Organization  of  Public  Accountants  practising  in  the  United  States  of  America 

CONSTITUENT  SOCIETIES: 

California  State  Society  of  Certified  Public  Accountants 

Colorado  Society  of  Certified  Public  Accountants 

Connecticut  Society  of  Certified  Public  Accountants 

Delaware  Society  of  Certified  Public  Accountants 

Georgia  Society  of  Certified  Public  Accountants 

Illinois  Society  of  Certified  Public  Accountants 

Kentucky  Society  of  Public  Accountants 

Louisiana  Certified  Public  Accountants,  Society  of 

Maryland  Association  of  Certified  Public  Accountants 

Massachusetts,  Certified  Public  Accountants  of,  Inc. 

Michigan  Association  of  Certified  Public  Accountants 

Minnesota  Society  of  Public  Accountants 

Missouri  Society  of  Certified  Public  Accountants 

Montana,  Association  of  Certified  Public  Accountants  of 

New  Jersey,  Society  of  Certified  Public  Accountants  of  the  State  of 

New  York  State  Society  of  Certified  Public  Accountants 

Ohio  Society  of  Certified  Public  Accountants  * 

Oregon  State  Society  of  Certified  Public  Accountants 

Pennsylvania  Institute  of  Certified  Public  Accountants 

Rhode  Island  Society  of  Certified  Public  Accountants 

Tennessee  Society  of  Certified  Public  Accountants 

Texas  State  Society  of  Public  Accountants 

Virginia  Society  of  Public  Accountants,  Inc. 

Washington  Society  of  Certified  Public  Accountants 

Wisconsin  Society  of  Certified  Public  Accountants 

EXTRACT  FROM  CONSTITUTION.  ARTICLE  I. 

The  name  of  the  association  shall  be  "The  American  Association  of  Public 
Accountants." 

Its  objects  shall  be  to  unite  in  one  organization  the  public  accountants 
practising  in  the  United  States,  to  advance  the  science  of  accountancy,  aid  in 
securing  uniformity  of  legislation  affecting  the  profession  and  the  business  com- 
munity, uphold  the  high  standard  of  the  profession,  and  encourage  cordial  inter- 
course among  public  accountants. 

PUBLICATIONS: 

THE  JOURNAL  OF  ACCOUNTANCY  (Monthly) 
20  Vesey  Street,  New  York  $3.00  per  annum 


YEAR  BOOK 

CONTAINING  TEXT  OF  ALL  C.  P.  A.  LAWS. 
LISTS  OF  MEMBERS,  ETC. 

$1.60  delivered 

Issued  by  the  Association.     Edited  by  the  Secretary 
A.  P.  RICHARDSON 

55  Liberty  Street',  New  York 


THE  INFLUENCE  OF  ACCOUNTANTS* 
CERTIFICATES  ON  COMMER- 
CIAL CREDIT 
50  cents   delivered 


«  If  it  were  not  for  credit  many  people  who  possess  capital  but  have  no  means  of  utilizing     |; 

I     it  themselves  would  find  it  useless  and  profitless. — John  Stuart  Mill 


LV 


ATLANTIC  NATIONAL  BANK 


OF  THE  CITY  OF  NEW  YORK 
257  BROADWAY 

FORMERLY  MERCHANTS  EXCHANGE  NATIONAL  BANK 


Capital,   Surplus  and  Undivided  Profits 
$1,750,000.00 


OFFICERS 

PHINEAS  C.  LOUNSBURY,  President 

HERMAN  D.  KOUNTZE,  Vice-President  GILBERT  H.  JOHNSON,  Vice-President 

EDWARD  K.CHERRILL,  Vice-President  EDWARD  V.  GAMBIER,  Vice-President 

KIMBALL  C.  ATWOOD,  Vice-President  FBANK  E.  ANDRUSS,  Cashier 

WILLIAM  F.  FITZSIMMONS,  Assistant  Cashier 


I 


DIRECTORS 


PHINEAS  C.  LOUNSBURY,  President 

JOHN  H.  HANAN, 

Hanan  &  Son,  Shoe  Manufacturers 
GILBERT  H.JOHNSON, 

Isaac  G.  Johnson  &  Co.,  Iron  Founders 
EDWIN  E.JACKSON,  JR. 

President,  Boorum  &  Pease  Co. 
KIMBALL  C.  ATWOOD, 

President,  Preferred  Accident  Insurance  Co. 
J.WALTER  EARLE. 

President,  Remington  Typewriter  Co. 
JOSE  M.  DIAZ, 

President,  Preferred  Havana  Tobacco  Co. 


DAVID  L.  LUKE, 

Vice-President,  W.  Va.  Pulp  &  Paper  Co. 
LORENZO  BENEDICT, 

President,  Worcester  Salt  Co. 
GEORGE  A.  GRAHAM, 

John  H.  Graham  &  Co. 
EDWARD  K.  CHERRILL,  Vice-President 

AUGUSTUS  F.  KOUNTZE, 

Kountze  Bros.,  141  Broadway 
HERMAN  D.  KOUNTZE,  Vice-President 

W.  DE  LANCEY  KOUNTZE, 

Kountze  Bros.,  141  Broadway 
T.  IRVING  HADDEN,  Hartsdale,  N.  Y. 


A  Commercial  Bank  in  a  Commercial  Centre 
Accounts  Solicited 


Q 


\  w\\\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ 

I  I  If  you  were  ignorant  of  this,  that  credit  is  the  greatest  capital  of  all  towards  the  acquisition     | 

^  I     of  wealth,  you  would  be  utterly  ignorant. — Demosthenes.  | 


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THE  UNIVERSITY  OF  CAUFORNIA  UBRARY 

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THE  LIBERTY 

NATIONAL  BANK 

of 

New  York 


CAPITAL    - $1,000,000 

SURPLUS   AND 

UNDIVIDED    PROFITS       3,000,000 

DEPOSITS 44,000,000 

OFFICERS 

THOMAS   COCHRAN PRESIDENT 

DANIEC  G.    RCID Vice-PRESIDCNT 

HARVEY    D.   GIBSON VICE-PRESIDENT 

CHARLES  W.    RIECKS        •        •  VICE-PRESIDENT  &  CASHIER 

ALEXANDER  M.  HALL,  2nd         ....       VICE-PRESIDENT 
FREDERICK   P.    MCGLYNN        -        -        -  ASSISTANT   CASHIER 

THEODORE  C.  HOVEY    ...        .         .        .     ASSISTANT  CASHIER 


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